Measuring Monetary Conditions in US Asset Markets - A Market Specific Approach

Christian Drescher () and Bernhard Herz

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze monetary conditions in US asset markets — corporate equity, real estate, Treasury bond and corporate & foreign bond — from a market specific perspective, proposing the concept of market leverage. Market leverage measures the average leverage of all asset holders in a particular asset market. The concept builds on an accounting based network that links balance sheet leverages of asset holders to their corresponding shares of ownership. Our empirical analysis yields the following results. Firstly, market specific monetary conditions can differ considerably among asset markets. Secondly, market specific monetary conditions are positively related to asset prices. Thirdly, US asset markets have experienced a loosening in market specific monetary conditions in the last decades. Fourthly, the loosening of market specific monetary conditions explains long-term increases in US asset prices. Fifthly, the recent convergence of market specific monetary conditions of real asset markets towards those of financial asset markets implies a rise in upside risk to future US asset price inflation.

Keywords: market leverage; monetary conditions; asset prices (search for similar items in EconPapers)
JEL-codes: E4 E5 G1 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27384

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