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Asset prices regime-switching and the role of inflation targeting monetary policy

Ioannis Chatziantoniou, George Filis () and Christos Floros

Global Finance Journal, 2017, vol. 32, issue C, 97-112

Abstract: This paper provides the empirical framework to assess whether UK monetary policy shocks induce both the UK housing market and the UK stock market to remain at a high-volatility (risk) environment. The Markov regime switching modelling approach is employed in order to identify two distinct environments for each market, namely, a high-risk environment and a low-risk environment, while a probit model is employed in order to test whether monetary policy shocks provide this predictive information regarding the current state of both markets under consideration. Our findings indicate that monetary policy shocks do indeed have predictive power on the stock market. In addition, in both asset markets, there is a key role for inflation. Results are important especially within the framework of the inflation targeting monetary policy regime.

Keywords: United Kingdom; Inflation targeting; Markov regime switching; Forecasting; Asset prices (search for similar items in EconPapers)
JEL-codes: C22 E52 G1 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Asset prices regime-switching and the role of inflation targeting monetary policy (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:32:y:2017:i:c:p:97-112

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