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Monetary policy, corporate profit and house prices

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  • W. A. Razzak
  • Imad A. Moosa

Abstract

By using portfolio theory, we explain the highly observed correlation between the seemingly unrelated corporate profit and house prices in the United States. We test the predictions of the underlying model using a vector autoregression representation and find the data to be supportive of the theory. Monetary impulses explain high correlation as both corporate profit and house prices exhibit similar dynamics in response to a monetary impulse. Robustness checks are presented by using the federal funds rate instead of the monetary base as a measure of the stance of monetary policy and by using other model variations. In all cases, the results are robust.

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  • W. A. Razzak & Imad A. Moosa, 2018. "Monetary policy, corporate profit and house prices," Applied Economics, Taylor & Francis Journals, vol. 50(28), pages 3106-3114, June.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:28:p:3106-3114
    DOI: 10.1080/00036846.2017.1418073
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    Cited by:

    1. W. A. Razzak, 2021. "Measuring the effect of negative interest rate on New Zealand banks," SN Business & Economics, Springer, vol. 1(3), pages 1-23, March.
    2. Razzak, Weshah, 2020. "The Riddle of the Natural Rate of Interest," MPRA Paper 102663, University Library of Munich, Germany, revised 25 Aug 2020.

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