Asset Prices and Consumer Prices: Exploring the Linkages

Dieter Gerdesmeier, Hans-Eggert Reimers and Barbara Roffia

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2016, vol. 62, issue 3, 169-186

Abstract: It is a well-established fact in monetary economics that money and credit developments may affect consumer price inflation directly as well as indirectly via changes in asset prices, while at the same time asset price fluctuations can independently affect monetary and real developments. This has led to proposals to assign a more prominent role to asset prices in central bank’s toolkit of leading indicators for future developments in consumer price inflation. In this study, we examine, in the context of reduced-form inflation equations, the importance of different variables (including standard explanatory variables) as well as some specific asset price variables (i.e., the changes in housing and equity prices, a yield spread and oil prices). Against this background, we make use of a panel approach, covering data for 17 industrialised countries and the euro area. Three main results emerge out of our analysis. First, a standard framework explaining current inflation by (lagged) developments in inflation, the output gap, short-term interest rates, oil prices, house and stock prices and the exchange rate seems to perform quite well, although the explanatory power of the equations decreases with the length of the time horizon. Second, as regards the role of asset prices, it can be shown that house price movements seem to provide more useful information on future consumer price developments than movements in equity prices. Finally, the results of the analysis show that broad monetary developments become more relevant as the time horizon lengthens. By contrast, equity prices and the yield spread seem to be somewhat less informative.

Keywords: Asset prices; house prices; stock prices; monetary aggregates; credit aggregates; consumer prices; inflation forecast (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.3790/aeq.62.3.169 (application/pdf)
Access to full text is restricted to subscribers (2008 onwards); Pay-per-view access from https://elibrary.duncker-humblot.com/journals/aeq (2008 onwards) and http://www.genios.de (2008 onwards)

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: https://EconPapers.repec.org/RePEc:dah:aeqaeq:v62_y2016_i3_q3_p169-186

Ordering information: This journal article can be ordered from
https://www.duncker-humblot.de/zeitschriften/aeq

Access Statistics for this article

Applied Economics Quarterly (formerly: Konjunkturpolitik) is currently edited by Cinzia Alcidi, Christian Dreger and Daniel Gros

More articles in Applied Economics Quarterly (formerly: Konjunkturpolitik) from Duncker & Humblot GmbH, Berlin
Bibliographic data for series maintained by E-Publishing-Team ().