The Impact of Asset Prices and their Information Value for Monetary Policy

David Mayes and Matti Virén ()

Revista ESPE - Ensayos Sobre Política Económica, 2010, vol. 28, issue 61, No 8322, 134-167

Abstract: In this paper we explore the contribution that assetprices appear to make to fluctuations in the economyand to inflation, and hence to monetary policy,using a large international panel for the 1970-2008period. We show that house prices are importantin the determination of economic activity, andtherefore to monetary policy, but that stock marketprices, while offering information in many periods,form a rather weaker and less well determined linkage.Moreover, the effects are asymmetric over thecourse of the economic cycle. Using an augmentedTaylor rule, we go on to show that monetary policyhas not reacted much to asset prices but that longruninterest rates are clearly affected by house priceinflation. Relationships tend to be weaker in recentyears, probably as a result of greater stability in outputgrowth and inflation. Nevertheless, our resultssuggest that central banks would do well to considerasset prices in deciding monetary policy.

Keywords: monetary policy; risk premiumshocks; exchange rate pass-through; structuralVAR; sign restriction. (search for similar items in EconPapers)
JEL-codes: E44 E5 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32468/Espe.6104

Related works:
Journal Article: The Impact of Asset Prices and their Information Value for Monetary Policy (2010)
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: https://EconPapers.repec.org/RePEc:col:000107:008322

Access Statistics for this article

More articles in Revista ESPE - Ensayos Sobre Política Económica from Banco de la República Contact information at EDIRC.
Bibliographic data for series maintained by Espe ().