Title:Measuring Monetary Conditions in US Asset Markets A Market Specific Approach
Authors:Christian Drescher and Bernhard Herz
WP Series:Economic Discussion Paper Series, No. 08-10, University of Bayreuth
Year:2010
Abstract:We analyze monetary conditions in US asset markets corporate equity, real estate, Treasury bond and corporate & foreign bond from a market specific perspective, proposing the concept of market leverage. Market leverage measures the average leverage of all asset holders in a particular asset market. The concept builds on an accounting based network that links balance sheet leverages of asset holders to their corresponding shares of ownership. Our empirical analysis yields the following results. Firstly, market specific monetary conditions can differ considerably among asset markets. Secondly, market specific monetary conditions are positively related to asset prices. Thirdly, US asset markets have experienced a loosening in market specific monetary conditions in the last decades. Fourthly, the loosening of market specific monetary conditions explains long-term increases in US asset prices. Fifthly, the recent convergence of market specific monetary conditions of real asset markets towards those of financial asset markets implies a rise in upside risk to future US asset price inflation.
Key words:market leverage, monetary conditions, asset prices
JEL class.:E4, E5, G1
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