Reviewing Excess Liquidity Measures - A Comparison for Asset Markets
AbstractThe conduct of US monetary policy is often accompanied by controversial debates on the adequacy of monetary conditions. These can result from different concepts of excess liquidity measures. The paper analyzes the theoretical and empirical information content of these concepts for asset markets. The analysis classifies, reviews and assesses measures of monetary conditions. For those that qualify as excess liquidity measures, the analysis continues with a comparison of the sources of imbalances and a discussion of the adequacy for asset markets. The theoretical results are cross-checked with empirical evidence. All excess liquidity measures are estimated and compared in the light of recent US asset bubbles. The analysis draws the following main conclusions. Firstly, not all measures of monetary conditions qualify as excess liquidity measure. Secondly, the increasing relevance of asset markets leads to growing distortions of excess liquidity measures. Thirdly, the choice of excess liquidity measure has influence on the assessment of monetary conditions in asset markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30922.
Date of creation: May 2011
Date of revision:
monetary overhang; real money gap; nominal money gap; credit ratios; leverage ratios; price gap; natural interest rate gap; Taylor gap;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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