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Title:Global excess liquidity and house prices: VAR analysis for OECD countries PDF Logo
Authors:Belke, Ansgar
Orth, Walter
Issue Date:2007
Series/Report no.:Ruhr economic papers 37
Abstract:The belief that house prices are driven by specific regional and institutional variables and not at all by monetary conditions is so entrenched with some market participants and some commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. This paper investigates the relationship between global excess liquidity and asset prices on a global scale:How important is global liquidity? How are asset (especially house) prices and other important macro variables like consumer prices affected by global monetary conditions? This paper analyses the international transmission of monetary shocks with a special focus on the effects of a global monetary aggregate (”global liquidity”) on consumer prices and different asset prices.We estimate a variety of VAR models for the global economy using aggregated data that represent the major OECD countries. The impulse responses show that a positive shock to global liquidity leads to permanent increases in the global GDP deflator and in the global house price index, while the latter reaction is even more distinctive. Moreover, we find that there are subsequent spillovers to consumer prices. In contrast, we are not able to find empirical evidence in favour of the hypothesis that the MSCIWorld index as a measure of stock prices significantly reacts to changes in global liquidity.
Subjects:Global liquidity
inflation control
international spillovers
asset prices
VAR analysis
JEL:E31
E52
F01
F42
ISBN:978-3-86788-035-0
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des RWI
Ruhr Economic Papers, RWI

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