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Liquidity and the Dynamic Pattern of Asset Price Adjustment: A Global View

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  • Ansgar Belke
  • Walter Orth
  • Ralph Setzer

Abstract

Global liquidity expansion has been very dynamic since 2001. Contrary to conventional wisdom, high money growth rates have not coincided with a concurrent rise in goods prices. At the same time, however, asset prices have increased sharply, significantly outpacing the subdued development in consumer prices. We investigate the interactions between money and goods and asset prices at the global level. Using aggregated data for major OECD countries, our VAR results support the view that different price elasticities on asset and goods markets explain the observed relative price change between asset classes and consumer goods.

Suggested Citation

  • Ansgar Belke & Walter Orth & Ralph Setzer, 2009. "Liquidity and the Dynamic Pattern of Asset Price Adjustment: A Global View," Discussion Papers of DIW Berlin 933, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp933
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    More about this item

    Keywords

    Global liquidity; inflation control; monetary policy transmission; asset prices;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F1 - International Economics - - Trade
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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