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Assessing the link between price and financial stability

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Author Info

  • Christophe Blot

    (Ofce,Sciences-po)

  • Jérôme Creel

    ()
    (Ofce, Sciences-po, Escp Europe)

  • Paul Hubert

    ()
    (Ofce,sciences-po)

  • Fabien Labondance

    ()
    (Ofce, Sciences-po)

  • Francesco Saraceno

    ()
    (Ofce: Sciences-po, LUISS)

Abstract

This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J Schwartz’s conventional wisdom that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss the empirical appropriateness of the leaning against the wind monetary policy approach.

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Bibliographic Info

Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2014-02.

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Date of creation: Feb 2014
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Handle: RePEc:fce:doctra:1402

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Keywords: Price stability; Financial stability; DCC-GARCH; VAR;

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References

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  1. Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
  2. Antonakakis, Nikolaos, 2012. "Dynamic Correlations of Sovereign Bond Yield Spreads in the Euro zone and the Role of Credit Rating Agencies' Downgrades," MPRA Paper 43013, University Library of Munich, Germany.
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  15. Disyatat, Piti, 2010. "Inflation targeting, asset prices, and financial imbalances: Contextualizing the debate," Journal of Financial Stability, Elsevier, vol. 6(3), pages 145-155, September.
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  17. Allen, William A. & Wood, Geoffrey, 2006. "Defining and achieving financial stability," Journal of Financial Stability, Elsevier, vol. 2(2), pages 152-172, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Les enjeux du triple mandat de la BCE
    by Laurence Duboys Fresney in OFCE le blog on 2014-07-16 14:22:27
  2. Dealing with the ECB’s triple mandate
    by Laurence Duboys Fresney in OFCE le blog on 2014-07-18 10:34:37

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