IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp933.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.342280.de/dp933.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Beyer, Andreas & Doornik, Jurgen A & Hendry, David F, 2001. "Constructing Historical Euro-Zone Data," Economic Journal, Royal Economic Society, vol. 111(469), pages 102-121, February.
    2. Akram, Q. Farooq & Eitrheim, Øyvind, 2008. "Flexible inflation targeting and financial stability: Is it enough to stabilize inflation and output?," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1242-1254, July.
    3. Miles, Marc A, 1978. "Currency Substitution, Flexible Exchange Rates, and Monetary Independence," American Economic Review, American Economic Association, vol. 68(3), pages 428-436, June.
    4. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2007. "Similarities and convergence in G-7 cycles," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 850-878, April.
    5. Moshirian, Fariborz, 2008. "Globalisation, growth and institutions," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 472-479, April.
    6. Sousa, Joao Miguel & Zaghini, Andrea, 2007. "Global monetary policy shocks in the G5: A SVAR approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(5), pages 403-419, December.
    7. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    8. Browne, Frank & Cronin, David, 2010. "Commodity prices, money and inflation," Journal of Economics and Business, Elsevier, vol. 62(4), pages 331-345, July.
    9. Darvas, Zsolt, 2009. "Leveraged carry trade portfolios," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 944-957, May.
    10. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    11. Matteo Ciccarelli & Benoît Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
    12. Oikarinen, Elias, 2009. "Interaction between housing prices and household borrowing: The Finnish case," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 747-756, April.
    13. Detken, Carsten & Adalid, Ramón, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series 732, European Central Bank.
    14. Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 696, European Central Bank.
    15. David Hendry & Jurgen Doornik, 2000. "Constructing Historical Euro-Zone Data," Economics Series Working Papers 4, University of Oxford, Department of Economics.
    16. Klaas Baks & Mr. Charles Frederick Kramer, 1999. "Global Liquidity and Asset Prices: Measurement, Implications, and Spillovers," IMF Working Papers 1999/168, International Monetary Fund.
    17. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    18. Greiber, Claus & Setzer, Ralph, 2007. "Money and housing: evidence for the euro area and the US," Discussion Paper Series 1: Economic Studies 2007,12, Deutsche Bundesbank.
    19. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850.
    20. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Belke, Ansgar & Orth, Walter & Setzer, Ralph, 2008. "Liquidity and the dynamic pattern of price adjustment: a global view," Discussion Paper Series 1: Economic Studies 2008,25, Deutsche Bundesbank.
    2. Belke, Ansgar H. & Bordon, Ingo G. & Hendricks, Torben W., 2014. "Monetary policy, global liquidity and commodity price dynamics," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 1-16.
    3. Ansgar Belke & Ingo Bordon & Torben Hendricks, 2010. "Global liquidity and commodity prices-a cointegrated VAR approach for OECD countries," Applied Financial Economics, Taylor & Francis Journals, vol. 20(3), pages 227-242.
    4. repec:zbw:rwirep:0037 is not listed on IDEAS
    5. Ansgar Belke & Walter Orth, 2007. "Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries," Ruhr Economic Papers 0037, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Ansgar BELKE & Walter ORTH & Ralph SETZER, 2008. "Global Liquidity and House Prices: A VAR Analysis for OECD Countries," EcoMod2008 23800010, EcoMod.
    7. Ansgar Belke & Walter Orth & Ralph Setzer, 2008. "Sowing the seeds for the subprime crisis: does global liquidity matter for housing and other asset prices?," International Economics and Economic Policy, Springer, vol. 5(4), pages 403-424, December.
    8. Belke, Ansgar & Bordon, Ingo G. & Volz, Ulrich, 2013. "Effects of Global Liquidity on Commodity and Food Prices," World Development, Elsevier, vol. 44(C), pages 31-43.
    9. Ansgar Belke & Ingo G. Bordon & Torben W. Hendricks, 2010. "Monetary Policy, Global Liquidity and Commodity Price Dynamics," Ruhr Economic Papers 0167, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    10. repec:zbw:rwirep:0167 is not listed on IDEAS
    11. repec:zbw:rwirep:0102 is not listed on IDEAS
    12. Ansgar Belke & Ingo G. Bordon & Torben W. Hendricks, 2009. "Global Liquidity and Commodity Prices – A Cointegrated VAR Approach for OECD Countries," Ruhr Economic Papers 0102, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Beckmann, Joscha & Belke, Ansgar & Czudaj, Robert, 2014. "Does global liquidity drive commodity prices?," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 224-234.
    14. Michael Berlemann & Julia Freese, 2013. "Monetary policy and real estate prices: a disaggregated analysis for Switzerland," International Economics and Economic Policy, Springer, vol. 10(4), pages 469-490, December.
    15. Dreger, Christian & Wolters, Jürgen, 2011. "Liquidity and Asset Prices: How Strong Are the Linkages?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1, pages 43-52.
    16. Luca Gattini & Huw Pill & Ludger Schuknecht, 2015. "A global perspective on inflation and propagation channels," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(3), pages 50-76, May.
    17. Christian Dreger & Jürgen Wolters, 2009. "Geldpolitik und Vermögensmärkte," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 78(1), pages 56-65.
    18. Ratti, Ronald A. & Vespignani, Joaquin L., 2013. "Crude oil prices and liquidity, the BRIC and G3 countries," Energy Economics, Elsevier, vol. 39(C), pages 28-38.
    19. Ellington, Michael & Milas, Costas, 2019. "Global liquidity, money growth and UK inflation," Journal of Financial Stability, Elsevier, vol. 42(C), pages 67-74.
    20. Ansgar Belke & Marcel Wiedmann, 2013. "Money, Stock Prices and Central Banks – Cross-Country Comparisons of Cointegrated VAR Models," ROME Working Papers 201308, ROME Network.
    21. Ratti, Ronald A. & Vespignani, Joaquin L., 2015. "Commodity prices and BRIC and G3 liquidity: A SFAVEC approach," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 18-33.
    22. repec:diw:diwfin:diwfin07041 is not listed on IDEAS
    23. Lucas Papademos, 2007. "The Effects of Globalization on Inflation, Liquidity and Monetary Policy," NBER Chapters, in: International Dimensions of Monetary Policy, pages 593-608, National Bureau of Economic Research, Inc.
    24. Ansgar Belke & Marcel Wiedmann, 2013. "Monetary Policy, Stock Prices and Central Banks - Cross-Country Comparisons of Cointegrated VAR Models," Ruhr Economic Papers 0435, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    Global liquidity; inflation control; monetary policy transmission; asset prices;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp933. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.