What are the global effects of this liquidity? The flows associated with the growth of global liquidity has played a role in helping to prolong the period of strong global growth seen in recent years. The associated search for yield has pushed down interest rates, bid up equity prices and generally put downward pressure on returns across a range of asset classes.
Many of these effects have been clearly welfare-enhancing. But in contrast to how markets might have reacted a decade ago, it has also allowed less disciplined economic behaviour by some households and firms. It has allowed global imbalances, particularly those associated with the contrasting current account positions of the major economies, to build up and persist beyond what might have previously been considered sustainable.