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Can Excess Liquidity Signal an Asset Price Boom?

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  • Annick Bruggeman

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    (National Bank of Belgium, Research Department)

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    Abstract

    This paper analyses the relationship between the prevailing liquidity conditions (such as measures of money, credit and interest rates) and developments in asset prices from a monetary analysis perspective. After having identified periods of sustained excess liquidity, we analyse under which conditions they are more likely to be followed by an asset price boom. The results from a descriptive analysis of the developments in a number of macroeconomic and financial variables suggest that periods of sustained excess liquidity that are accompanied by strong economic activity, low interest rates, high real credit growth and low inflation have a higher likelihood of being followed by an asset price boom. This conclusion is also confirmed by a logit analysis.

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    File URL: http://www.nbb.be/doc/oc/repec/reswpp/wp117En.pdf
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    Bibliographic Info

    Paper provided by National Bank of Belgium in its series Working Paper Research with number 117.

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    Length: 31 pages
    Date of creation: Aug 2007
    Date of revision:
    Handle: RePEc:nbb:reswpp:200708-08

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    Keywords: excess liquidity; asset prices; logit model;

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    Cited by:
    1. Goknur Umutlu & Yilmaz Yildız, 2011. "The Effect of Global Liquidity on Macroeconomic Parameters," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 167-181, September.

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