Tài liệu Ensuring Financial Stability: Financial Structure and the Impact of Monetary Policy on Asset Prices

Revised draft


Ensuring Financial Stability: Financial Structure and the Impact of Monetary Policy on Asset Prices


Katrin Assenmacher-Wesche∗


Research Department
Swiss National Bank


Stefan Gerlach
Institute for Monetary and Financial Stability
Johann Wolfgang Goethe University, Frankfurt


March 26, 2008


Abstract


This paper studies the responses of residential property and equity prices,
inflation and economic activity to monetary policy shocks in 17 countries,
using data spanning 1986-2006. We estimate VARs for individual economies
and panel VARs in which we distinguish between groups of countries on the
basis of the characteristics of their financial systems. The results suggest that
using monetary policy to offset asset price movements in order to guard
against financial instability may have large effects on economic activity.
Furthermore, while financial structure influences the impact of policy on asset
prices, its importance appears limited.


Keywords: asset prices, monetary policy, panel VAR.


JEL Number: C23, E52


∗ The views expressed are solely our own and are not necessarily shared by the SNB. We are grateful


to seminar participants at the SNB and Petra Gerlach for helpful comments. Contact information:
Katrin Assenmacher-Wesche (corresponding author): SNB, Börsenstrasse 15, Postfach 2800, CH-
8022 Zürich, Switzerland, Tel +41 44 631 3824, email: <a class="__cf_email__" href="http://www.cloudflare.com/email-protection" data-cfemail="8ac1ebfef8e3e4a4cbf9f9efe4e7ebe9e2eff8a7ddeff9e9e2efcaf9e4e8a4e9e2">[email protected]<script type="text/javascript">
(function(){try{var s,a,i,j,r,c,l,b=document.getElementsByTagName("script");l=b[b.length-1].previousSibling;a=l.getAttribute(data-cfemail);if(a){s=;r=parseInt(a.substr(0,2),16);for(j=2;a.length-j;j+=2){c=parseInt(a.substr(j,2),16)^r;s+=String.fromCharCode(c);}s=document.createTextNode(s);l.parentNode.replaceChild(s,l);}}catch(e){}})();
; Stefan
Gerlach: IMFS, Room 101D, Mertonstrasse 17, D-60325 Frankfurt/Main, Germany, email:
<a class="__cf_email__" href="http://www.cloudflare.com/email-protection" data-cfemail="7320071615121d5d3416011f12101b33041a041a5d061d1a5e1501121d18150601075d17165d">[email protected]<script type="text/javascript">
(function(){try{var s,a,i,j,r,c,l,b=document.getElementsByTagName("script");l=b[b.length-1].previousSibling;a=l.getAttribute(data-cfemail);if(a){s=;r=parseInt(a.substr(0,2),16);for(j=2;a.length-j;j+=2){c=parseInt(a.substr(j,2),16)^r;s+=String.fromCharCode(c);}s=document.createTextNode(s);l.parentNode.replaceChild(s,l);}}catch(e){}})();

1. Introduction


There is much agreement that asset prices, in particular residential property prices, provide a


crucial link through which adverse macroeconomic developments can cause financial


instability.1 Episodes of asset price “booms” are seen as raising the risk of a sharp correction


of prices, which could have immediate repercussions on the stability of financial institutions.


Indeed, many observers have argued that property-price collapses have historically played


an important role in episodes of financial instability at the level of individual financial


institutions and the macro economy (e.g. Ahearne et al. 2005, Goodhart and Hofmann 2007a).


Not surprisingly, this view has led to calls for central banks to react to movements in asset


prices “over and beyond” what such changes imply for the path of aggregate demand and


inflation (Borio and Lowe 2002, Cecchetti et al. 2000). Proponents of this policy emphasise


that episodes of financial instability could depress inflation and economic activity below


their desired levels. Consequently, they argue, central banks that seek to stabilise the


economy over a sufficiently long time horizon may need to react to current asset price


movements (Bean 2004, Ahearne et al. 2005). Importantly, they do not argue that asset prices


should be targeted, only that central banks should be willing to tighten policy at the margin


in order to slow down increases in asset prices that are viewed as being excessively rapid in


order to reduce the likelihood of a future crash that could trigger financial instability and


adverse macroeconomic outcomes.


While seemingly attractive, this proposed policy has implications for central banks'


understanding of economic developments and for the effectiveness of monetary policy (Bean


2004, Bernanke 2002, Kohn 2006). First, central banks must be able to identify in real time


whether asset prices are moving too fast or are out of line with fundamentals. Second,


changes in policy-controlled interest rates must have stable and predictable effects on asset


prices. Third, the effects of monetary policy on different asset prices, such as residential


property and equity prices, must be about as rapid, since stabilising one may otherwise lead


to greater volatility of the other. Needless to say, if these criteria are not satisfied


simultaneously, any attempts by central banks to offset asset price movements may simply


1 The chapters in Hunter et al. (2003) provide an excellent overview of the interlinkages between


monetary policy, asset prices and financial stability.


1