The Long-Run Effects of the Fed’s Monetary Policy on the Dynamics among Major Asset Classes

Miao Jia ()
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Miao Jia: School of Accounting, Finance and Informatics, Kingston Business School, Kingston University, London, United Kingdom of Great Britain and Northern Ireland

International Journal of Management and Economics, 2016, vol. 51, issue 1, 9-19

Abstract: It is well known that government monetary policies significantly impact financial markets. There have been numerous studies examining the relationship between monetary policy and the prices of financial assets, including equities and bonds. Little, however, has been done to explore the impact of major financial assets on changes in monetary policies.This study examines the impacts of the Federal Reserve’s monetary policy on the dynamics of major financial assets in the U. S. For this purpose, cointegration was tested for between equities, bonds and real estate markets in the period 1980 to 2014, whereas the U. S. monetary base M2 was used as an exogenous variable.Our cointegration tests suggest that the exogenous component of the U. S. M2 significantly affected the interaction among major U. S. financial assets. These findings have implications for both policymakers and market practitioners in terms of portfolio allocation rules.

Keywords: monetary policy; cointegration and error correction models; portfolio management (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ijomae:v:51:y:2016:i:1:p:9-19:n:2

DOI: 10.1515/ijme-2016-0016

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