House prices and stock prices: Different roles in the U.S. monetary transmission mechanism
AbstractWe analyze the role of house and stock prices in the monetary policy transmission mechanism in the U.S. using a structural VAR model. The VAR is identifed using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous interaction between monetary policy and asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find different roles for house and stock prices in the monetary transmission mechanism. In particular, following a contractionary monetary policy shock, stock prices fall immediately, while the response in house prices is much more gradual. However, the fall in both house prices and stock prices enhances the negative response in output and inflation that has traditionally been found in the literature. Regarding the systematic response in monetary policy, stock prices play a more important role in the interest rate setting in the short run than house prices. As a consequence, shocks to house prices contribute more to GDP and inflation fluctuations than stock price shocks.
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Bibliographic InfoPaper provided by Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School in its series Working Papers with number 0006.
Length: 36 pages
Date of creation: Aug 2012
Date of revision:
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VAR; monetary policy; house prices; identification;
Other versions of this item:
- Hilde C. Bjørnland & Dag Henning Jacobsen, 2013. "House Prices and Stock Prices: Different Roles in the US Monetary Transmission Mechanism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(4), pages 1084-1106, October.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-MAC-2012-09-03 (Macroeconomics)
- NEP-MON-2012-09-03 (Monetary Economics)
- NEP-URE-2012-09-03 (Urban & Real Estate Economics)
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