House prices and stock prices: Different roles in the U.S. monetary transmission mechanism

Hilde C. Bjørnland () and Dag Henning Jacobsen ()
Authors registered in the RePEc Author Service: Hilde Christiane Bjørnland ()

No No 1/2012, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: We analyze the role of house and stock prices in the monetary policy transmission mechanism in the U.S. using a structural VAR model. The VAR is identifed using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous interaction between monetary policy and asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find different roles for house and stock prices in the monetary transmission mechanism. In particular, following a contractionary monetary policy shock, stock prices fall immediately, while the response in house prices is much more gradual. However, the fall in both house prices and stock prices enhances the negative response in output and inflation that has traditionally been found in the literature. Regarding the systematic response in monetary policy, stock prices play a more important role in the interest rate setting in the short run than house prices. As a consequence, shocks to house prices contribute more to GDP and inflation fluctuations than stock price shocks.

Keywords: VAR; monetary policy; house prices; identification (search for similar items in EconPapers)
JEL-codes: C32 E44 E52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-08
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: House Prices and Stock Prices: Different Roles in the US Monetary Transmission Mechanism (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0006

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