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Asset Price Shocks, Real Expenditures, and Financial Structure:A Multi-Country Analysis

Bob Chirinko (), Leo de Haan () and Elmer Sterken ()

No 200411, CCSO Working Papers from University of Groningen, CCSO Centre for Economic Research

Abstract: This paper examines the response of the economies of 11 EU countries, Japan, and the United States to shocks in housing and equity prices. The effects are assessed with a Structural Vector Auto Regressive (SVAR) model, and four key findings emerge. First, the impacts of asset price shocks are heterogeneous across countries. Second, these heterogeneous responses are systematically related to cross-country variation in financial structure, and we are thus able to document the importance of a wealth/balance sheet channel for consumption and an equity finance channel for investment. Third, for a given country, housing shocks have a much greater impact than equity shocks. Fourth, variance decompositions indicate that monetary policy reacts to equity price shocks but not to housing price shocks. These results highlight the important role played by asset prices on real activity, and fuel the debate about the inclusion of asset prices in the formulation of monetary policy.

Date: 2004
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Related works:
Working Paper: Asset Price Shocks, Real Expenditures, and Financial Structure: A Multi-Country Analysis (2008) Downloads
Working Paper: Asset Price Shocks, Real Expenditures, and Financial Structure: A Multi-Country Analysis (2004) Downloads
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