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Asset Prices, Monetary Policy, and Aggregate Fluctuations: An Empirical Investigation

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  • Lichao Cheng
  • Yi Jin
  • Zhixiong Zeng

Abstract

This paper studies empirically the dynamic interactions between asset prices, monetary policy, and aggregate fluctuations during the Volcker-Greenspan period. Using a simple structural vector autoregression framework, we investigate the effects of monetary policy on output, inflation and asset prices, the interactions of asset prices with the aggregate economy, as well as the relationship between stock price and house price. Several robust findings emerge. The systematic response of monetary policy to output and inflation is also found to play an important role in stabilizing the aggregate economy. In addition, the results call for special attention to be paid to house price when studying the dynamic relationships between asset prices and macroeconomic fluctuations.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/1311assetpriceschengyinzeng.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 13-11.

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Length: 47 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-13

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Keywords: House prices; stock prices; systematic monetary policy; structural vector autoregressions.;

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