Financial intermediation, asset prices, and macroeconomic dynamics

Tobias Adrian, Emanuel Moench and Hyun Song Shin

No 422, Staff Reports from Federal Reserve Bank of New York

Abstract: Fluctuations in the aggregate balance sheets of financial intermediaries provide a window on the joint determination of asset prices and macroeconomic aggregates. We document that financial intermediary balance sheets contain strong predictive power for future excess returns on a broad set of equity, corporate, and Treasury bond portfolios. We also show that the same intermediary variables that predict excess returns forecast real economic activity and various measures of inflation. Our findings point to the importance of financing frictions in macroeconomic dynamics and provide quantitative guidance for preemptive macroprudential and monetary policies.

Keywords: Macroeconomics; Forecasting; Assets (Accounting); Intermediation (Finance) (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba, nep-for, nep-mac and nep-reg
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Working Paper: Financial Intermediation, Asset Prices, and Macroeconomic Dynamics (2010)
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