Can Excess Liquidity Signal an Asset Price Boom?

Annick Bruggeman ()
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Annick Bruggeman: National Bank of Belgium, Research Department

No 117, Working Paper Research from National Bank of Belgium

Abstract: This paper analyses the relationship between the prevailing liquidity conditions (such as measures of money, credit and interest rates) and developments in asset prices from a monetary analysis perspective. After having identified periods of sustained excess liquidity, we analyse under which conditions they are more likely to be followed by an asset price boom. The results from a descriptive analysis of the developments in a number of macroeconomic and financial variables suggest that periods of sustained excess liquidity that are accompanied by strong economic activity, low interest rates, high real credit growth and low inflation have a higher likelihood of being followed by an asset price boom. This conclusion is also confirmed by a logit analysis.

Keywords: excess liquidity; asset prices; logit model (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2007-08
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:200708-08

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