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Asset Price Shocks, Real Expenditures, and Financial Structure:A Multi-Country Analysis

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  • Chirinko, Robert S.
  • Haan, Leo de
  • Sterken, Elmer

    (Groningen University)

Abstract

This paper examines the response of the economies of 11 EU countries, Japan, and the United States to shocks in housing and equity prices. The effects are assessed with a Structural Vector Auto Regressive (SVAR) model, and four key findings emerge. First, the impacts of asset price shocks are heterogeneous across countries. Second, these heterogeneous responses are systematically related to cross-country variation in financial structure, and we are thus able to document the importance of a wealth/balance sheet channel for consumption and an equity finance channel for investment. Third, for a given country, housing shocks have a much greater impact than equity shocks. Fourth, variance decompositions indicate that monetary policy reacts to equity price shocks but not to housing price shocks. These results highlight the important role played by asset prices on real activity, and fuel the debate about the inclusion of asset prices in the formulation of monetary policy.

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Paper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 200411.

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Date of creation: 2004
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Handle: RePEc:dgr:rugccs:200411

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Cited by:
  1. Fabio C. Bagliano & Claudio Morana, 2010. "The Great Recession: US dynamics and spillovers to the world economy," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 34-2010, ICER - International Centre for Economic Research.
  2. Fabio C. Bagliano & Claudio Morana, 2011. "Macro-finance interactions in the US: A global perspective," Working papers, Former Department of Economics and Public Finance "G. Prato", University of Torino 23, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  3. Guarda, Paolo & Jeanfils, Philippe, 2012. "Macro-Financial Linkages: evidence from country-specific VARs," CEPR Discussion Papers 8875, C.E.P.R. Discussion Papers.
  4. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 533-545, March.
  5. Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers, NIPE - Universidade do Minho 22/2008, NIPE - Universidade do Minho.
  6. Castro, Vítor & Sousa, Ricardo M., 2012. "How do central banks react to wealth composition and asset prices?," Economic Modelling, Elsevier, vol. 29(3), pages 641-653.
  7. Andrea Beltratti & Claudio Morana, 2008. "International shocks and national house prices," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 14-2008, ICER - International Centre for Economic Research.
  8. Vansteenkiste, Isabel, 2007. "Regional housing market spillovers in the US: lessons from regional divergences in a common monetary policy setting," Working Paper Series, European Central Bank 0708, European Central Bank.
  9. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, Springer, vol. 154(4), pages 587-600, December.
  10. Marco Del Negro & Christopher Otrok, 2005. "Monetary policy and the house price boom across U.S. states," Working Paper, Federal Reserve Bank of Atlanta 2005-24, Federal Reserve Bank of Atlanta.

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