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Financial structure and the impact of monetary policy on asset prices

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  • Gerlach, Stefan
  • Assenmacher-Wesche, Katrin

Abstract

We study the responses of residential property and equity prices, inflation and economic activity to monetary policy shocks in 17 countries, using data spanning 1986-2006, using single-country VARs and panel VARs in which we distinguish between groups of countries depending on their financial systems. The effect of monetary policy on property prices is about three times as large as its impact on GDP. Using monetary policy to guard against financial instability by offsetting asset-price movements thus has sizable effects on economic activity. While the financial structure influences the impact of policy on asset prices, its importance appears limited. --

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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2008/30.

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Date of creation: 2008
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Handle: RePEc:zbw:cfswop:200830

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Keywords: Asset Prices; Monetary Policy; Panel VAR;

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  1. Calza, Alessandro & Monacelli, Tommaso & Stracca, Livio, 2007. "Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6231, C.E.P.R. Discussion Papers.
  2. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
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  6. Matteo Iacoviello, 2002. "House Prices and Business Cycles in Europe: a VAR Analysis," Boston College Working Papers in Economics, Boston College Department of Economics 540, Boston College Department of Economics.
  7. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  8. Massimo GIULIODORI, 2002. "Monetary Policy Shocks and the Role of House Prices Across European Countries," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 164, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  9. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  10. Tobias Adrian & Hyun Song Shin, 2008. "Financial intermediaries, financial stability, and monetary policy," Staff Reports, Federal Reserve Bank of New York 346, Federal Reserve Bank of New York.
  11. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  12. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series, European Central Bank 0240, European Central Bank.
  13. Michael Ehrmann & Leonardo Gambacorta & Jorge Martìnez-Pagès & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 432, Bank of Italy, Economic Research and International Relations Area.
  14. Stefano Neri, 2004. "Monetary policy and stock prices: theory and evidence," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 513, Bank of Italy, Economic Research and International Relations Area.
  15. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(3), pages 377-406, June.
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