Working Paper: CEPR ID: DP6773
Authors: Katrin Assenmacher-Wesche; Stefan Gerlach
Abstract: This paper studies the responses of residential property and equity prices, inflation and economic activity to monetary policy shocks in 17 countries, using data spanning 1986-2006. We estimate VARs for individual economies and panel VARs in which we distinguish between groups of countries on the basis of the characteristics of their financial systems. The results suggest that using monetary policy to offset asset price movements in order to guard against financial instability may have large effects on economic activity. Furthermore, while financial structure influences the impact of policy on asset prices, its importance appears limited.
Keywords: asset prices; monetary policy; panel VAR
JEL Codes: C23; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (E52) | Residential property prices (R31) |
| Monetary policy (E52) | Real GDP (E20) |
| Monetary policy (E52) | Equity prices (G12) |
| Monetary policy shocks (E39) | Residential property prices (R31) |
| Monetary policy shocks (E39) | Equity prices (G12) |
| Residential property prices (R31) | Economic stability (E60) |
| Equity prices (G12) | Economic stability (E60) |