Testing Wicksellianism

Thomas Aubrey

Chapter Chapter 6 in Profiting from Monetary Policy, 2013, pp 113-155 from Palgrave Macmillan

Abstract: Abstract In 2011 the IMF published a study looking at the drivers behind the asset allocation decisions of long-term investors in an attempt to ascertain the risks that sudden changes in asset allocation have on global financial stability. The analysis concluded that investor decisions were largely driven by positive growth prospects as indicated by real GDP growth forecasts.2 This implies that when forecasts suddenly reverse, as they did during the financial crisis, it can lead to dramatic capital flows out of bond and equity funds into cash or liquid credit-worthy government bonds such as US Treasuries. Such rapid movements can of course exacerbate the stability of the economy and increase the volatility of asset prices. The challenge in the lead up to the financial crisis was that most investors’ real GDP forecasts were wrong. The reality is that any attempt to forecast the future is fraught with complexity and more than likely to be misleading.

Keywords: Monetary Policy; Equity Market; Equity Return; Leverage Ratio; Equity Price (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-28970-4_7

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DOI: 10.1057/9781137289704_7

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