Working Paper: CEPR ID: DP14874
Authors: Ralph Koijen; Motohiro Yogo
Abstract: Using international holdings data, we estimate a demand system for financial assetsacross 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices; interpreting majoreconomic events such as the European sovereign debt crisis; and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates,debt quantities, and foreign exchange reserves) account for 55 percent of the variationin exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. Theaverage convenience yield is 2.15 percent on US long-term debt and 1.70 on US equity.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic variables (E19) | demand for short-term debt (E41) |
| macroeconomic variables (E19) | demand for long-term debt (E41) |
| macroeconomic variables (E19) | equity demand (R21) |
| latent demand (R22) | variation in exchange rates (F31) |
| latent demand (R22) | variation in long-term yields (E43) |
| latent demand (R22) | variation in stock prices (G17) |
| macroeconomic variables (E19) | exchange rates (F31) |
| macroeconomic variables (E19) | long-term yields (E43) |
| macroeconomic variables (E19) | stock prices (G12) |