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Asset prices, monetary policy, and aggregate fluctuations: An empirical investigation

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  • Cheng, Lichao
  • Jin, Yi

Abstract

This paper studies empirically the dynamic interactions between asset prices, monetary policy, and aggregate fluctuations in the U.S. during the Volcker–Greenspan period. Results from a simple structural vector autoregression indicate that monetary policy reacts directly to the term spread and indirectly to stock prices and house prices via output and inflation, that there is an asymmetry in the interactions between asset prices and aggregate activity, and that asset prices exhibit positive comovement.

Suggested Citation

  • Cheng, Lichao & Jin, Yi, 2013. "Asset prices, monetary policy, and aggregate fluctuations: An empirical investigation," Economics Letters, Elsevier, vol. 119(1), pages 24-27.
  • Handle: RePEc:eee:ecolet:v:119:y:2013:i:1:p:24-27
    DOI: 10.1016/j.econlet.2013.01.005
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    References listed on IDEAS

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    1. repec:eee:dyncon:v:84:y:2017:i:c:p:43-57 is not listed on IDEAS
    2. Helmut Lütkepohl & Aleksei Netsunajev, 2014. "Structural Vector Autoregressions with Smooth Transition in Variances - The Interaction Between U.S. Monetary Policy and the Stock Market," SFB 649 Discussion Papers SFB649DP2014-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Lanne, Markku & Meitz, Mika & Saikkonen, Pentti, 2017. "Identification and estimation of non-Gaussian structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 196(2), pages 288-304.
    4. Herwartz, Helmut & Maxand, Simone & Rohloff, Hannes, 2018. "Lean against the wind or float with the storm? Revisiting the monetary policy asset price nexus by means of a novel statistical identification approach," Center for European, Governance and Economic Development Research Discussion Papers 354, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    House prices; Stock prices; Term structure; Monetary policy; Structural vector autoregressions;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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