The effects of global liquidity on global imbalances

•The effects on global imbalances of global liquidity, especially the US monetary aggregate, are significant.•The foreign exchange reserves of emerging economies also play a significant role driving global imbalances.

This paper examines whether global liquidity has effects on global imbalances. To this end, we estimate Panel-VARX models using data from the G5 (United States, United Kingdom, Euro area, Japan, and Canada) and 20 emerging countries. The empirical results show that the effects on global imbalances of global liquidity, especially the US monetary aggregate, are significant. The foreign exchange reserves of emerging economies are also found to play a significant role related to global imbalances.