Financial Intermediation, Asset Prices and Macroeconomic Dynamics

42 Pages Posted: 7 Jan 2010

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: January 1, 2010

Abstract

Fluctuations in the aggregate balance sheets of financial intermediaries provide a window on the joint determination of asset prices and macroeconomic aggregates. We document that financial intermediary balance sheets contain strong predictive power for future excess returns on a broad set of equity, corporate, and Treasury bond portfolios. We also show that the same intermediary variables that predict excess returns forecast real economic activity and various measures of inflation. Our findings point to the importance of financing frictions in macroeconomic dynamics and provide quantitative guidance for preemptive macroprudential and monetary policies.

Keywords: return predictability, financial intermediation, macroeconomic dynamics, macroprudential policy

JEL Classification: G10, G12

Suggested Citation

Adrian, Tobias and Moench, Emanuel and Shin, Hyun Song, Financial Intermediation, Asset Prices and Macroeconomic Dynamics (January 1, 2010). FRB of New York Staff Report No. 422, Available at SSRN: https://ssrn.com/abstract=1532319 or http://dx.doi.org/10.2139/ssrn.1532319

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )

Germany

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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