Liquidity and the dynamic pattern of price adjustment:a global view

Global liquidity expansion has been very dynamic since 2001. Contrary to conventionalwisdom, high money growth rates have not coincided with a concurrent rise in goodsprices. At the same time, however, asset prices have increased sharply, significantlyoutpacing the subdued development in consumer prices. This paper examines theinteractions between money, goods and asset prices at the global level. Usingaggregated data for major OECD countries, our VAR results support the view thatdifferent price elasticities on asset and goods markets explain the recently observedrelative price change between asset classes and consumer goods....