Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153502
Authors: 
Gerdesmeier, Dieter
Roffia, Barbara
Reimers, Hans-Eggert
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1068
Abstract: 
This paper contributes to the literature on the properties of money and credit indicators for detecting asset price misalignments. After a review of the evidence in the literature on this issue, the paper discusses the approaches that can be considered to detect asset price busts. Considering a sample of 17 OECD industrialised countries and the euro area over the period 1969 Q1 – 2008 Q3, we construct an asset price composite indicator which incorporates developments in both the stock price and house price markets and propose a criterion to identify the periods characterised by asset price busts, which has been applied in the currency crisis literature. The empirical analysis is based on a pooled probit-type approach with several macroeconomic monetary, financial and real variables. According to statistical tests, credit aggregates (either in terms of annual changes or growth gap), changes in nominal long-term interest rates and investment-to-GDP ratio combined with either house prices or stock prices dynamics turn out to be the best indicators which help to forecast asset price busts up to 8 quarters ahead.
Subjects: 
asset price busts
asset prices
credit aggregates
financial crisis
House prices
monetary aggregates
probit models
stock prices
JEL: 
E37
E44
E51
Document Type: 
Working Paper

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