Asset Price Booms, "Fat Tails," and Monetary Policy in East Asia-super-
This study provides empirical evidence for the proposition that asset price booms matter because they tend to bring about the worst output, price, and inflation outcomes in the case of eight East Asian countries, namely, Hong Kong SAR, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, and Thailand. The main findings are: (i) asset price booms in housing and equity markets, especially in housing, significantly lower the conditional mean of real output growth and raise those of the price-level gap and inflation, and also raise the conditional variance of all three variables; and (ii) expected real output and price-level outcomes that are obtained without conditioning on asset price booms, or are obtained conditionally on asset price booms using the normal distribution, both underestimate the risk of the worst outcomes occurring and lead to less pessimistic but misleading inferences. These findings are not premised on the ability of central bankers to be able to identify correctly asset bubbles ex ante. One possible implication for monetary policy is that central bankers ought to be wary about the occurrence of any large increase in asset prices and consider an approach that is ex ante more compatible with risk management. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.
Volume (Year): 8 (2009)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://www.mitpressjournals.org/loi/asep|
When requesting a correction, please mention this item's handle: RePEc:tpr:asiaec:v:8:y:2009:i:1:p:69-98. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.