How Does the Economic Uncertainty Affect Asset Prices under Normal and Financial Distress Times?
Zeynel Ozdemir (),
Huseyin Ozdemir (),
Gurcan Aygun () and
Mark Wohar ()
Additional contact information
Huseyin Ozdemir: Gazi University
Gurcan Aygun: Gazi University
No 15296, IZA Discussion Papers from Institute of Labor Economics (IZA)
By using a nonlinear VAR model, we investigate whether the response of the US stock and housing markets to uncertainty shocks depends on financial conditions. Our model allows us to change the response of the US financial markets to volatility shocks in periods of normal and financial distress. We find strong evidence that uncertainty shocks have adverse effects on the US financial markets, irrespective of financial conditions. Moreover, our empirical results show that the rebound in US housing prices, which fell sharply in the economic turmoil, is state-dependent. This reflects the Fed's expansionary monetary policy to stabilize the US housing market. Furthermore, our findings reveal that economic agents who closely monitor the impact of uncertainty on the US stock and housing markets should also consider financial frictions in the US economy.
Keywords: asset prices; economic uncertainty; financial conditions; regime switching; US (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 G01 G12 R31 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp15296
Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Access Statistics for this paper
More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().