Abstract: Unlike the previous studies that focus on a single liquidity measure, this paper uses three measures of liquidity ― bank credit, M2, Lf ― estimate implied liquidity and examines the relationship between the implied liquidity and macroeconomic variables. We find that these liquidity measures, especially bank credit, were greater than the implied liquidity before the financial crisis. They temporarily fell after the crisis due to the delay in economic recovery, and have recently come to move around the implied liquidity. Furthermore, an increase in the implied liquidity during an economic expansion causes housing price appreciation and inflation. The evidence provided in this paper implies that this new measure can provide a good reference to evaluate the extent to which actual liquidity deviates from its equilibrium.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: preprint
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