these quantity - and price - based indicators are really relevant for policy - makers and show developments which are “ orthogonal ” to what the other indicators show? recent research has found that a large set of financial and macroeconomic indicators for global liquidity can be represented by three main factors which can be labelled “ monetary policy ”, “ credit supply ” and “ credit demand ”. these three structural see committee on the global financial system, “ global liquidity – concept, measurement and policy implications ”, cgfs paper no 45, bank for international settlements, basel, november 2011. see e. g. s. chen, a. maechler, s. saksonovs, and h. shin, “ exploring the dynamics of global liquidity ”, imf working paper 12 / 246, october 2012. see cgfs ( op. cit. ). see b. cœure ( 2012 ), “ global liquidity and risk appetite : a re - interpretation of the recent crises ”, speech at the bis - ecb workshop on global liquidity and its international repercussions, frankfurt am main, 6 february 2012. bis central bankers ’ speeches liquidity factors have contributed to shaping global financial dynamics in the run - up to, and in the aftermath of, the financial crisis ( see slide 2 ). before 2007 global credit supply was a driving force of low interest rates and rapid credit expansion, while since 2008 looser official liquidity has partly compensated for tighter private liquidity ( see slide 3 ). 5 while such purely statistical exercises should be always treated with caution, it is encouraging that there is a broad agreement on the main drivers of global liquidity in the academic literature. 6 a long - term view on international risk sharing and financial globalisation a lot of attention is currently being paid to the negative externalities associated with fluctuations of global liquidity. one prominent example is the discussion about the international spillovers of unconventional monetary policies in the advanced economies. clearly, sustained low interest rates and domestic bond purchases by central banks can spill over to asset prices elsewhere. recent empirical studies indicate, however, that the effect of the various rounds of qe policies by the us federal reserve has so far had a relatively small, albeit pro - cyclical, global impact. 7 furthermore, the international transmission of unconventional monetary policies is not homogeneous. the first round of qe in the us, mainly aimed at improving market functioning, had a smaller impact on equity markets and exchange rates

in emerging market economies ( emes ) than the second round of qe policies implemented through large - scale asset purchases ( see slide 4 ). in addition, “ pull - factors ” such as positive growth differentials and financial deepening in emes have also been important drivers of capital flows to these countries ( see slide 5 ). likewise, while the bank of japan's new monetary policy strategy prompted fears of a “ currency war ”, it is not proven so far that its global impact could be negative. nevertheless, this is an important debate, and we have to take the arguments put forward by eme policy - makers seriously. however, the current debate focuses too much today on the negative externalities of domestic monetary policy decisions, and overlooks the fact that global liquidity is closely intertwined with the degree of international risk - sharing. international risk - sharing is usually defined as a situation where fluctuations in consumption are decoupled from idiosyncratic fluctuations in output, and where consumption growth rates across countries are highly correlated. the disconnect between consumption and output is of course made possible by lending to, and borrowing from, abroad, hence by cross - border liquidity flows. access to a complete set of contingent financial assets in the sense of arrow and debreu would allow countries to perfectly insure against idiosyncratic risk. as is well known from the theoretical literature, the benefits of international risk - sharing may be considerable and should not be underestimated. 8 see s. eickmeier, l. gambacorta and b. hofmann, “ understanding global liquidity ”, bis working paper no 402, february 2013. in addition, the relative importance of global liquidity factors varies across regions. for instance, m2 growth seems dominated by the “ credit supply ” factor in the euro area, while it is dominated by monetary policy and macro factors in emerging asia. see for example v. bruno and h. shin : “ capital flows, cross - border banking and global liquidity ”, princeton university, mimeo. see m. fratzscher, m. lo duca and r. straub, “ a global monetary tsunami? on the spillovers of us quantitative easing ”, cepr discussion paper no 9195, october 2012. see m. obstfeld, “ evaluating risky consumption paths : the role of intertemporal substitutability ”, european economic review, vol. 38, no