The interaction between money and asset markets: A spillover index approach

David Cronin

Journal of Macroeconomics, 2014, vol. 39, issue PA, 185-202

Abstract: We employ Diebold and Yilmaz’s (2009, 2012) spillover approach to study the relationship between US money and financial assets since 2000. We find that sizeable spillovers arise during periods of economic and financial turbulence (after the 11 September 2001 terrorist attacks, the post-Lehman Brothers bankruptcy period, and in the second half of 2011 when there were concerns about sovereign market developments). Households readjusting their portfolios between holdings of risky financial assets and nominal-certain money may have been the dominant factor at play in explaining this. The interaction of the monetary base with the financial assets in recent years is less than that of M2 with them, a perhaps surprising feature given the balance sheet policies pursued by the Federal Reserve during this time.

Keywords: Money supply; Asset price behaviour; Spillover index (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (57)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:39:y:2014:i:pa:p:185-202

DOI: 10.1016/j.jmacro.2013.09.006

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