Year: 2012
Type: preprint
Abstract: We analyze the role of house and stock prices in the monetary policy transmission\nmechanism in the U.S. using a structural VAR model. The VAR is identifed using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous\ninteraction between monetary policy and asset prices. By allowing the interest rate and\nasset prices to react simultaneously to news, we find different roles for house and stock\nprices in the monetary transmission mechanism. In particular, following a contractionary\nmonetary policy shock, stock prices fall immediately, while the response in house prices is\nmuch more gradual. However, the fall in both house prices and stock prices enhances the\nnegative response in output and inflation that has traditionally been found in the literature.\nRegarding the systematic response in monetary policy, stock prices play a more important\nrole in the interest rate setting in the short run than house prices. As a consequence, shocks\nto house prices contribute more to GDP and inflation fluctuations than stock price shocks.
Authors: Hilde C. Bjørnland, Dag Henning Jacobsen
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121140418