Asset Price Volatility a Catalyst to Weakness in the Real Economy

Victor, Xing (2017): Asset Price Volatility a Catalyst to Weakness in the Real Economy.

Abstract

Executive Summary: • Many economists expect poor data to precede financial market weakness under the framework that buoyant asset markets reflect economic strength, and benign indicators would imply a rise in volatility is far from imminent • Rising financialization has amplified the impact of non-bank financing on the real economy, for yield-seeking institutional investors depressed risk-free returns and “moved up the ladder” in duration, credit and liquidity risks • As monetary authorities turn to quantitative tightening, heightened asset price volatility would threaten entities reliant on non-bank financing, thus turning weakness in asset markets into a constraint on real economic activities

• Item Type: MPRA Paper
• Language: English
• Keywords: Volatility, non-bank financing, contagion risk, spill-over impact
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

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