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Article

Importance of Proper Monetary Liquidity: Sustainable Development of the Housing and Stock Markets

1
Department of Finance, National Yunlin University of Science and Technology, Yunlin 64002, Taiwan
2
Department of Finance, National University of Kaohsiung, Kaohsiung 81148, Taiwan
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(21), 8989; https://doi.org/10.3390/su12218989
Received: 3 October 2020 / Revised: 17 October 2020 / Accepted: 25 October 2020 / Published: 29 October 2020
In this paper, we infer that when no excess monetary liquidity exists, people tend to invest available capital in assets associated with a high return or low risk. However, when excess monetary liquidity occurs, capital may successively boost asset markets, and the stock market wealth is thus likely to spill into housing markets, resulting in bubbles in these two markets and therefore in the unsustainable development of both the housing and stock markets. This paper uses relevant data from the United Kingdom from January 1991 to March 2020 to verify whether excess monetary liquidity is a crucial factor determining the relationship between the housing and stock markets. Continuous and structural changes are found to exist between housing price and stock price returns. This paper employs the time-varying coefficient method for estimation and determines that the influence of stock price returns on housing returns is dynamic, and an asymmetrical effect can occur according to whether excess monetary liquidity exists. An excessively loose monetary policy increases asset prices and can thus easily result in a mutual rise in asset markets. By contrast, when excess monetary liquidity does not exist, capital transfer among markets can prevent autocorrelation during excessive market investment and thereby aggravate market imbalance. View Full-Text
Keywords: monetary liquidity; monetary policy; sustainable development of asset markets; capital transfer; capital switching effect monetary liquidity; monetary policy; sustainable development of asset markets; capital transfer; capital switching effect
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MDPI and ACS Style

Chiang, M.-C.; Tsai, I.-C. Importance of Proper Monetary Liquidity: Sustainable Development of the Housing and Stock Markets. Sustainability 2020, 12, 8989. https://doi.org/10.3390/su12218989

AMA Style

Chiang M-C, Tsai I-C. Importance of Proper Monetary Liquidity: Sustainable Development of the Housing and Stock Markets. Sustainability. 2020; 12(21):8989. https://doi.org/10.3390/su12218989

Chicago/Turabian Style

Chiang, Ming-Chu, and I-Chun Tsai. 2020. "Importance of Proper Monetary Liquidity: Sustainable Development of the Housing and Stock Markets" Sustainability 12, no. 21: 8989. https://doi.org/10.3390/su12218989

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