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

Wirtschaftswissenschaftliche Diskussionspapiere der Universität Bayreuth Discussion Paper No. 08-10

32 Pages Posted: 2 Dec 2010 Last revised: 1 Jun 2011

See all articles by Christian Drescher

Christian Drescher

University of Bayreuth

Bernhard Herz

University of Bayreuth

Date Written: November 2010

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

JEL Classification: E4, E5, G1

Suggested Citation

Drescher, Christian and Herz, Bernhard, Measuring Monetary Conditions in US Asset Markets - A Market Specific Approach (November 2010). Wirtschaftswissenschaftliche Diskussionspapiere der Universität Bayreuth Discussion Paper No. 08-10, Available at SSRN: https://ssrn.com/abstract=1718381 or http://dx.doi.org/10.2139/ssrn.1718381

Christian Drescher (Contact Author)

University of Bayreuth ( email )

Universitätsstraße 30
Bayreuth, DE Bayern 95447
Germany

Bernhard Herz

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany