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Assessing the Link between Price and Financial Stability

  • Christophe Blot

    (OFCE - Sciences Po)

  • Jerome Creel

    (OFCE - Sciences Po, and ESCP Europe)

  • Paul Hubert

    (OFCE - Sciences Po)

  • Fabien Labondance

    (OFCE - Sciences Po)

  • Francesco Saraceno

    (OFCE - Sciences Po, and LUISS)

This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J Schwartz's "conventional wisdom" that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss about the empirical appropriateness of the "leaning against the wind" monetary policy approach.

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Paper provided by Financialisation, Economy, Society & Sustainable Development (FESSUD) Project in its series Working papers with number wpaper33.

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Length: 41 pages
Date of creation: 01 Feb 2013
Date of revision:
Handle: RePEc:fes:wpaper:wpaper33
Contact details of provider: Postal: FESSUD Co-ordinator (Malcolm Sawyer) Leeds University Business School Maurice Keyworth Buidling Leeds LS2 9JT

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