Could there be a global liquidity crisis?

Some investors are concerned that the end of quantitative easing programmes (in the United States, the euro zone) could lead to a contraction in global liquidity, giving rise to a crisis due to a shortfall of liquidity and, as a result, a fall in asset prices. We show that this concern is unfounded: We break down global liquidity creation into its different components to show that liquidity will remain abundant, al though it is declin ing slowly; There is currently considerable excess liquidity: a moderate reduction in liquidity is unlikely to have an impact; It is the stock of liquidity and not the flow of central banks’ asset purchases (the change in liquidity) that influences financial asset prices.