THE ROLE OF CREDIT AGGREGATES AND ASSET PRICES IN THE TRANSMISSION MECHANISM: A COMPARISON BETWEEN THE EURO AREA AND THE USA

Sylvia Kaufmann and Maria Valderrama ()

Manchester School, 2010, vol. 78, issue 4, 345-377

Abstract: We analyse the interaction between credit and asset prices in the transmission of shocks to the real economy using a Markov switching vector autoregression. While we confirm the existence of different regimes, we find no evidence of financial imbalances coming from mutually reinforcing effects of lending and asset prices in the euro area. In the USA, on the contrary, there is some evidence for reinforcing effects between asset prices and lending. Moreover, it turns out that in the USA asset prices are important determinants of GDP, while in the euro area lending is an important determinant of inflation.

Date: 2010
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https://doi.org/10.1111/j.1467-9957.2009.02139.x

Related works:
Working Paper: The role of credit aggregates and asset prices in the transmission mechanism: a comparison between the euro area and the US (2007)
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