Macroeconomic importance of asset bubbles: An event study for the G4 countries

This study sheds light on the reaction of the gross domestic product, private consumption, investments, private-sector lending, the inflation rate and monetary policies in relation to stock-market and real-estate bubbles within the framework of an event study for Germany, Great Britain, Japan and the United States. The primary finding is that in the phase in which a positive bubble forms (boom phase), the examined real variables and credit aggregates display above-average growth rates. Whereas in the case of stock-market bubbles the variables lag behind several quarters, in the case of real-estate booms the growth rates of the variables achieve their maximum levels several quarters before the real-estate price peaks. In the boom phases, lending displayed a lead over the real variables, especially investments. In contrast to the peaks in asset prices, troughs do not seem to coincide with the macroeconomic effects. Instead, phases in which upon reaching the peaks price collapse occur (bust phases) are marked by significantly below-average growth rates of the real variables and lending aggregates. While the effects of real-estate busts are evident immediately after reaching the peaks and can still be registered within the framework of the event of "positive real-estate bubbles", stock-markets busts show their negative effects only in the second year after the bursting of the bubble. The maximum drop of the growth rates of GDP, its components and the lending aggregates coincides with the trough in the stock-market price. In the context of negative real-estate bubbles, which follow five years after a peak, on average, no significantly above-average growth of the examined variables could be determined.