Aggregate Price Shocks and Financial Instability: An Historical Analysis
Michael Bordo (),
Michael Dueker and
David Wheelock ()
No 7652, NBER Working Papers from National Bureau of Economic Research, Inc
This paper presents empirical evidence on the hypothesis that aggregate price disturbances cause or worsen financial instability. We construct two annual indexes of financial conditions for the United States covering 1790-1997, and estimate the effect of aggregate price shocks on each index using a dynamic ordered probit model. We find that price level shocks contributed to financial instability during 1790-1933, and that inflation rate shocks contributed to financial instability during 1980-97. Our research indicates that the size of the aggregate price shocks needed to substantially alter financial conditions depends on the institutional environment, but that a monetary policy focused on price stability would be conducive to financial stability.
JEL-codes: E31 E52 (search for similar items in EconPapers)
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Published as Bordo, Michael D., Michael J. Dueker and David C. Wheelock. "Aggregate Price Shocks And Financial Instability: A Historical Analysis," Economic Inquiry, 2002, v40(4,Oct), 521-538.
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Journal Article: Aggregate Price Shocks and Financial Instability: A Historical Analysis (2002)
Working Paper: Aggregate price shocks and financial instability: a historical analysis (2001)
Working Paper: Aggregate Price Shocks and Financial Instability: An Historical Analysis (2000)
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