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Title:Asset price shocks, real expenditures, and financial structure: a multi-country analysis PDF Logo
Authors:Chirinko, Robert S.
de Haan, Leo
Sterken, Elmer
Issue Date:2008
Series/Report no.:CESifo working paper 2342
Abstract:This paper examines the responses of private consumption, residential investment, and business investment in 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. We are thus able to document the importance of a wealth/balance sheet channel for private consumption and residential investment and an equity finance channel for business 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.
Subjects:Monetary policy
asset prices
structural VAR
JEL:E44
E52
E2
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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