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Funding Conditions, Asset Prices and Macroeconomic Dynamics: Some U.S. Evidence

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  • Vassalli, Matilde
  • Trecroci, Carmine

Abstract

Funding liquidity, i.e., the ease with which firms, investors and consumers can obtain funding, is a key property of today's monetary transmission mechanism. We investigate empirically the role played by various measures of credit availability in shaping the dynamics of asset prices and the fluctuations of real activity in the US.We find that changes in funding conditions are more tightly associated with future asset valuations than with developments in key macroeconomic aggregates. Results also point to the presence of a positive feedback loop between asset valuations and credit availability. Finally, the response of equity and house prices to the easing of funding conditions is stronger following shocks to liquidity than after conventional interest-rate shocks. These novel results highlight potentially destabilizing properties of recent liquidity cycles and unconventional monetary policies.

Suggested Citation

  • Vassalli, Matilde & Trecroci, Carmine, 2013. "Funding Conditions, Asset Prices and Macroeconomic Dynamics: Some U.S. Evidence," EconStor Preprints 191941, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:191941
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    More about this item

    Keywords

    Business cycle; Asset prices; Funding liquidity; Monetary policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G1 - Financial Economics - - General Financial Markets

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