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Global excess liquidity does it matter for house and stock prices on a global scale

Author

Listed:
  • Belke, Ansgar

    (University of Duisburg-Essen)

  • Setzer, Ralph

    (European Commission - DG ECFIN)

  • Orth, Walter

    (University of Cologne)

Abstract

This paper investigates the relationship between global liquidity and asset prices on a global scale: how important is global liquidity? How are asset (especially house) prices and other important macro variables affected by global monetary conditions? This paper analyzes the international transmission of monetary shocks with a special focus on the effects of a global monetary aggregate (global liquidity) on different asset prices, namely houses and share prices. We estimate a variety of VAR models for the global economy using aggregated data that represent the major OECD countries. The impulse responses obtained show that a positive shock to global liquidity leads to permanent increases in the global GDP deflator and in the global house price index, with the latter reaction being even more distinctive. Moreover, we find that there are subsequent spill-over effects from house prices to consumer prices. In contrast, we are not able to find empirical evidence in favor of the hypothesis that stock prices significantly react to changes in global liquidity.

Suggested Citation

  • Belke, Ansgar & Setzer, Ralph & Orth, Walter, 2008. "Global excess liquidity does it matter for house and stock prices on a global scale," Journal of Financial Transformation, Capco Institute, vol. 24, pages 145-154.
    • Handle: RePEc:ris:jofitr:0018
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    Cited by:

    1. Igan, Deniz & Kabundi, Alain & Nadal De Simone, Francisco & Pinheiro, Marcelo & Tamirisa, Natalia, 2011. "Housing, credit, and real activity cycles: Characteristics and comovement," Journal of Housing Economics, Elsevier, vol. 20(3), pages 210-231, September.
    2. Peter Spahn, 2010. "Asset Prices, Inflation and Monetary Control - Re-inventing Money as a Policy Tool," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 323/2010, Department of Economics, University of Hohenheim, Germany.

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