Download or read book The Role of Asset Prices in Transmitting Monetary and Other Shocks written by Stephen Millard and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we construct a framework within which we can assess the ability of asset prices to convey information about the underlying shocks hitting the economy. We first use an identified VAR to establish a set of quot;stylised factsquot; as to how asset prices respond to exogenous monetary policy movements. We then develop a theoretical model of the economy and analyse how asset prices within it respond to different shocks. Consumers in the model consume both market-produced and home-produced goods. There are two types of firms: those producing traded goods - sold on competitive world markets - and those producing non-traded goods. Non-traded goods producers face costs of adjusting their capital stocks and can only reset their prices once a year in a staggered fashion. We show that the model is able to replicate the quot;stylised factsquot; found in the empirical exercise. We then show how asset prices respond to shocks to productivity in the traded, non-traded and household production sectors and a shock to the world price of traded goods. With these results we are able to assess what information asset prices may give us about the shocks affecting the economy at any particular time.

Download or read book The Role of Asset Prices in Transmitting Monetary and Other Shocks written by Stephen Millard and published by . This book was released on 2003 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Asset Prices and Monetary Policy written by John Y. Campbell and published by University of Chicago Press. This book was released on 2008-11-15 with total page 444 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.

Download or read book The Role of Credit Aggregates and Asset Prices in the Transmission Mechanism written by Sylvia Kaufmann and published by . This book was released on 2007 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the interaction between credit and asset prices in the transmission of shocks to the real economy. We estimate a Markov switching VAR for the euro area and the US, including additionally GDP, CPI and a short-term interest rate. We find evidence for two distinct states in both regions. For the euro area, we find a regime which is correlated to the business cycle and which captures periods of very low real credit growth at the end ofrecessions. However, during this regime credit markets and asset price markets do notimpede economic recovery. In the other regime, we do find a procyclical effect of credit andasset price shocks on GDP. Shocks in both variables explain each about 20% of GDP's forecast error variance after four years. Credit shocks have a positive effect on inflation and explain about 35% of the forecast error variance, which confirms that credit aggregates contain information about the monetary stance. The effect of asset price shocks on inflationis insignificant and their share in explaining the forecast error variance negligible. For the US, regime 1 captures periods of stable GDP growth, and low and stable inflation, combined with accelerating asset prices. We find procyclical effects of credit and asset price shocks onGDP only in regime 2. Shocks in both variables explain about the same share (20%) of GDP forecast error variance, whereby the share explained by asset price shocks is about two anda half times larger than in regime 1. Shocks to credit and asset prices have no significant effect on CPI and explain each about 10% of its forecast error variance in both regimes. This is consistent with the view that monetary policy may achieve price stability without necessarily achieving financial stability.

Download or read book U S Monetary Shocks and Global Stock Prices written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2010-12-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation.

Download or read book On the First Round Effects of International Food Price Shocks written by Rafael Portillo and published by International Monetary Fund. This book was released on 2015-02-23 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable small open-economy model to study the first-round effects of international food price shocks in developing countries. We define first-round effects as changes in headline inflation that, holding core inflation constant, help implement relative price adjustments. The model features three goods (food, a generic traded good and a non-traded good), varying degrees of tradability of the food basket, and alternative international asset market structures (complete and incomplete markets, and financial autarky). First-round effects depend crucially on the asset market structure and the different transmission mechanisms they trigger. Under complete markets, inter-temporal substitution prevails, making the inflationary impact of international food prices proportional to the food share in consumption, which in developing economies is typically large. Under financial autarky, the income channel is dominant, and first-round effects are instead proportional to the country's food balance—the difference between the country's food endowment and its consumption—which in developing countries is typically small. The latter result holds regardless of the degree of food tradability. Incomplete markets yield a combination of the two extremes. Our results cast some doubt on the view that international food price shocks are inherently inflationary in developing countries.

Download or read book Crisis and Change in the Japanese Financial System written by Takeo Hoshi and published by Springer Science & Business Media. This book was released on 2000-05-31 with total page 350 pages. Available in PDF, EPUB and Kindle. Book excerpt: Specialists in various aspects of the Japanese financial industry describe, analyze, and evaluate the crisis that began with bursting real east bubbles in the early 1990s and resulting non-performing loans, delay by regulatory authorities and the banks themselves, a decompressive deregulation in 1996, major reforms in 1998 and early 1999 that made $500 billion of government funds available, and the resulting lack of regulatory control. In the context of the transition from a bank-centered and relationship-based system to market-based and competitive, they investigate why the banks got into such serious trouble, why the Ministry of Finance lost its immense power, how financial regulation will further change the industry and the huge government financial institutions and postal savings, and what some broader implications are of the transitions. Most of the 12 studies are revised from presentations at an October 1998 conference in New York. Annotation copyrighted by Book News, Inc., Portland, OR

Download or read book Asset Prices and Central Bank Policy written by Stephen Giovanni Cecchetti and published by Centre for Economic Policy Research. This book was released on 2000 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt: Concludes the role of asset prices in monetary policy is one of the most important, and difficult, questions confronting central banks.

Download or read book Asset Price Bubbles written by William Curt Hunter and published by MIT Press. This book was released on 2005 with total page 650 pages. Available in PDF, EPUB and Kindle. Book excerpt: A study of asset price bubbles and the implications for preventing financial instability.

Download or read book Explaining International Comovements of Output and Asset Returns written by Robert Miguel W. K. Kollman and published by International Monetary Fund. This book was released on 1999-06-01 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages and a flexible exchange rate. The structure here predicts positive international transmission of country-specific monetary policy and technology shocks, and it generates sizable cross-country correlations of output and of asset returns.

Download or read book Asset Pricing and the Propagation of Financial Shocks written by Ivan Jaccard and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study augments the neoclassical growth model with a mechanism that creates a novel transmission channel through which financial shocks propagate to the real economy. By affecting agents' ability to finance consumption expenditures, financial frictions create a demand for safe assets that exposes the economy to asset quality shocks. My main finding is that this mechanism provides a potential explanation for the co-movement observed during the 2007-2009 financial crisis in the eurozone. My results also suggest that these shocks are a plausible source of aggregate risk that could explain business cycle fluctuations as well as standard asset pricing puzzles. Finally, introducing this transmission mechanism into the neoclassical growth model increases the welfare cost of business cycle fluctuations by several orders of magnitude.

Download or read book Monetary Policy Stock Returns and the Role of Credit in the Transmission of Monetary Policy written by Willem Thorbecke and published by . This book was released on 2010 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a multi-factor asset pricing model to investigate whether fluctuations in industry stock returns are due to industry stock returns are due to industry-specific shocks or to monetary and other macroeconomic factors. We find that common factors explain a substantial portion of the variation in stock returns, indicating that economic fluctuations are not due to industry-specific factors alone. We also find that disinflationary policy benefits large but not small firms. These results have mixed implications for the view that credit market frictions propagate monetary shocks.

Download or read book Risk Asset Pricing and Monetary Policy Transmission in Europe written by Jörg Schmidt and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates in how far monetary policy shocks impact Euro- pean asset markets, conditional on different risk states. It focuses on four different asset classes: equity of industrial firms, equity of banks, high-grade corporate bonds, and high-yielding corporate bonds. We distinguish between macroeconomic risk, political risk, and financial risk. In a first step, we sep- arately extract three factors via principal component analysis from a set of candidate variables that are assumed to be driven by these latent types of risk. Next, these factors augment a threshold-VAR model that contains assets and a short-rate. Our model is estimated with Bayesian techniques and identified recursively. We illustrate that during periods of severe crisis, different risk regimes coincide. This impedes a clear delimitation among these three types of risk. Further on, impulse responses show that we indeed see state-dependency in the reaction of asset prices to monetary policy shocks. AA-rated corporate bond yields only show minor state-dependency if we distinguish between states of high and macroeconomic or financial risk, but show very pronounced state- dependency for political risk. Their sensitivity to monetary policy shocks is highest if political risk is . Non-investment-grade corporate bond yields as well as equity of industrial firms face the strongest state-dependency when we differentiate between macroeconomic or financial risk. If these risks are high, junk bond yields are very sensitive to monetary policy shocks while the opposite holds for equity of industrial corporations. Surprisingly, financial equity in general reacts positively or insignificant to hikes in short-rates. The positive reaction is most pronounced for states of high financial risk. As a consequence, monetary policy transmission via distinct asset markets highly depends on the degree of these different kinds of risk inherent in European asset markets. This also has strong implications for investors: they have to be aware of this varying degree of sensitivity of asset prices to changes in policy rates as they highly depend on the respective prevailing risk-regime.

Download or read book The Transmission of Liquidity Shocks written by Mr.Philippe D Karam and published by International Monetary Fund. This book was released on 2014-11-19 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the transmission of bank-specific liquidity shocks triggered by a credit rating downgrade through the lending channel. Using bank-level data for US Bank Holding Companies, we find that a credit rating downgrade is associated with an immediate and persistent decline in access to non-core deposits and wholesale funding, especially during the global financial crisis. This translates into a reduction in lending to households and non-financial corporates at home and abroad. The effect on domestic lending, however, is mitigated when banks (i) hold a larger buffer of liquid assets, (ii) diversify away from rating-sensitive sources of funding, and (iii) activate internal liquidity support measures. Foreign lending is significantly reduced during a crisis at home only for subsidiaries with weak funding self-sufficiency.

Download or read book Asset Prices Banking and Economic Activity written by Sandeep Bhaskar and published by . This book was released on 2016 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines the role of asset prices to act as a transmission and amplification mechanism. Specifically, it looks at how changes in asset prices can help transmit and amplify technology shocks through the credit channel by changing the supply of loanable funds, or changing the supply of deposits, or both. Using a modified version of the Kiyotaki-Moore credit cycles model with concave utility and decreasing returns to scale production function, the dissertation illustrates that asset prices can as a credible amplification and transmission mechanism. Using concave utility and decreasing returns to scale production function allows the incorporation risk aversion into the credit cycles model. The model can help explain the gap between observed magnitude of shocks, and the corresponding changes in economic activity. The behavior of a heterogeneous agent economy in response to a technology shock is simulated using computer programs. The simulations show that a one percent technology shock translates into a more than four percent change in capital held by the constrained agents by moving capital from one agent type to the other. This moves the economy away from a first-best equilibrium. If the technology shock is positive there is an increased demand of capital from the more productive agents, and thus a more than proportionate increase in output. If the technology shock is negative, the opposite path is followed, and economic activity falls more than proportionately. There are credit constraints built into the model. Agents' access to credit is determined by the value of collateral on oer, which in turn depends on asset prices. Technology shocks change demand for assets, their prices, their value as collateral, and hence agents' access to credit. Further, since prices are forward looking, a shock in one period propagates through time. These simulations show that the effects of the shock can be felt up to 13 periods after it has hit. An event analysis with housing price data from 18 countries spanning a period of more than four decades is also performed. It shows that there is strong co-movement of housing prices and economic activity. In particular, larger changes in housing prices have been accompanied by qualitatively similar changes in economic activity. The period leading up to the peak of a real estate cycle is accompanied by a more than proportionate increase in private sector lending, and once the peak has been crested, there is a more than proportionate fall in nominal private sector lending. This evidence is in sync with the earlier observation that changes in asset prices influence agents' access to credit and contribute to the persistence of the effects of the shock far into the future. Further, the preferred measure of economic health, the rate of inflation, sees no measurable change in periods leading up to a real estate peak, and beyond. This throws up the need for some other measure of economic health that is better able to capture the events in asset markets. Policy makers have been paying more attention to this channel in the aftermath of the sub-prime mortgage crisis in the United States. There have been multiples changes in regulatory policy across the world, and specific steps are being taken to dampen exuberance in the real estate market. Only time can tell if these measures turn out to be effective, but at least a step has been taken towards realizing that housing market can lead to a wider economic and banking crisis.

Download or read book Country Transparency and the Global Transmission of Financial Shocks written by Mr.Luis Brandão Brandao Marques and published by International Monetary Fund. This book was released on 2013-07-03 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.

Download or read book Transmission of Policy Shocks in a Monetary Asset Pricing Model written by Markus Müller and published by . This book was released on 1999 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: