The Money Multiplier and Asset Returns

  title={The Money Multiplier and Asset Returns},
  author={Anna Stepashova},
In this paper I study the relationship between aggregate money balances and subsequent stock and bond returns. I find that levels of broad money multipliers (the ratios of broad money to narrow money) forecast future returns with a negative sign, while changes in these multipliers forecast returns with a positive sign. These findings indicate that levels of multipliers are pro-cyclical: like the P/D ratio, they tend to be high at times of low expected returns. The dynamics of these multipliers… CONTINUE READING