Asset Price Booms, "Fat Tails," and Monetary Policy in East Asia-super-*

Maria Socorro Gochoco-Bautista
Additional contact information
Maria Socorro Gochoco-Bautista: Professor of Economics, University of the Philippines, School of Economics, Diliman, Quezon City, Philippines 1101.

Asian Economic Papers, 2009, vol. 8, issue 1, pages 69-98

Abstract: 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.

Date: 2009

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/asep.2009.8.1.69 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:tpr:asiaec:v:8:y:2009:i:1:p:69-98

Ordering information: This journal article can be ordered from
http://www.mitpressjournals.org/loi/asep

Access Statistics for this article

Asian Economic Papers is edited by Jeffrey D. Sachs, Yunjong Wang and Wing Thye Woo

More articles in Asian Economic Papers from MIT Press
Series data maintained by Christopher F. Baum ().