Essays in International Macroeconomics: Global Liquidity, Cross-border Spillovers, and Emerging Economies

This thesis contributes to our understanding of the implications of global liquidity and cross-border spillovers to emerging economies and its policy implications. First, it analyses the empirical regularity on the impact of the United States (US) Quantitative Easing (QE) -as a compelling case of the international dimension of monetary policy- on the global stability and policymaking. It then utilises a more theoretical framework to examine the empirical findings. We find that the effectiveness of QE varies across episodes, with QE1 having a substantially positive influence on the global economy, but the impact of QE2 and QE3 were moderate. There is evidence that US QE periods were responded by monetary easing in the rest of the world that materialised through the long and short rates. This monetary easing response slows down capital inflows, an expected effect if inflows are destabilising. However, the impact can be detrimental if the inflows are used to fund investment in the domestic economy. Then we focus on the reverse policy action, the Fed lift-off, to examine how the monetary authorities in other economies should respond by considering not just monetary policy but also macroprudential policy. We find that, without macroprudential policy, the less financially integrated economies are affected less by the lift-off, but those applying a fixed exchange rate regime are affected more. Nevertheless, macroprudential policy is significantly effective in reducing fluctuations in both types of economies. We then empirically study the determinants of global banking liquidity and establish an international banking connectedness map. We find that an increase of global liquidity is significantly caused by a rise in the US policy rate and global credit-to-GDP gaps; whereas an appreciation of the US Dollar and an increase in the TED spread have significant opposite effects.