Working Paper: NBER ID: w25106
Authors: Ricardo Lagos; Shengxing Zhang
Abstract: We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence.
Keywords: Monetary Policy; Liquidity; Asset Prices
JEL Codes: D83; E52; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tight Monetary Policy (E52) | Increased Opportunity Cost (D61) |
| Increased Opportunity Cost (D61) | Reduced Resale Liquidity (G33) |
| Reduced Resale Liquidity (G33) | Lower Asset Prices (G19) |
| Tight Monetary Policy (E52) | Lower Asset Prices (G19) |
| Unexpected Increase in Policy Rate (E43) | Decrease in Stock Market Returns (G17) |
| Higher Turnover Rates (J63) | Larger Decline in Returns (G19) |
| Unexpected Policy Tightening (E61) | Declines in Stock Turnover (G32) |