Relationship Between Money Supply and Asset Prices in Developed Countries

We examine the relationship between money supply and asset prices. In particular, we examine the relationship between the money supply and the equity market in Japan, Switzerland, Singapore, Great Britain, and New Zealand. Since U.S. is the largest economy in the world, we also examine the relationship between U.S. money supply and other assets, namely gold, oil and three subsectors of the U.S. stock market (consumer staples, consumer discretionary and real estate). No long-run relationship is found when the Johansen test for cointegration is applied on the U.S. assets and money supply. Further, there is found no particular evidence that the latter variable is driving the price of these assets. Contrary, we find that the money supply and stock market of Japan, Switzerland, Great Britain and New Zealand are cointegrated during different time periods