In the aftermath of the global financial crisis, central banks in advanced economies adopted unconventional monetary policies such as quantitative easing, in addition to conventional policies like low interest rates. However, the increase in global liquidity in terms of key international currencies, driven by unconventional monetary policies, has led some emerging economies to move toward inflation and unstable capital markets. This means that there could be a global divergence of inflation between advanced and emerging economies. This inflation divergence also appears between emerging economies. The emerging economies, distinguished by capital flow control or current account surplus, have little inflation pressure. We suggest that the global divergence of inflation is related to both domestic and international liquidity circulation velocities. In particular, capital control or current account plays a role in determining the velocity of global liquidity circulation.
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© 2016 Institute of Developing Economies.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics