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Can Excess Liquidity Signal an Asset Price Boom?

Author

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  • Annick Bruggeman

    (National Bank of Belgium, Research Department)

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.

Suggested Citation

  • Annick Bruggeman, 2007. "Can Excess Liquidity Signal an Asset Price Boom?," Working Paper Research 117, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200708-08
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    File URL: https://www.nbb.be/doc/ts/publications/wp/wp117en.pdf
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    References listed on IDEAS

    as
    1. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 364, European Central Bank.
    2. Claudio E. V. Borio & Philip Lowe, 2004. "Securing sustainable price stability: should credit come back from the wilderness?," BIS Working Papers 157, Bank for International Settlements.
    3. Gouteron, S. & Szpiro, D., 2005. "Excès de liquidité monétaire et prix des actifs," Working papers 131, Banque de France.
    4. Detken, Carsten & Adalid, Ramón, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series 732, European Central Bank.
    5. William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
    6. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
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    Cited by:

    1. Bussière Matthieu & Sahuc Jean-Guillaume & Pfister Christian, 2020. "The link between money and inflation since 2008 [Le lien entre monnaie et inflation depuis 2008]," Bulletin de la Banque de France, Banque de France, issue 232.
    2. Huang Yiping & Wang Xun & Hua Xiuping, 2010. "What Determine China’s Inflation?," Macroeconomics Working Papers 22770, East Asian Bureau of Economic Research.
    3. 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 167181-1671, September.
    4. L. Aucremanne & S. Ide, 2010. "Lessons from the crisis : Monetary policy and financial stability," Economic Review, National Bank of Belgium, issue ii, pages 7-20, September.

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    More about this item

    Keywords

    excess liquidity; asset prices; logit model;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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