House Prices and Stock Prices: Different Roles in the US Monetary Transmission Mechanism*

Abstract

We analyze the role of house and stock prices in the monetary policy transmission mechanism in the U.S. using a structural VAR model. The VAR is identified using a combination of short-run and long-run (neutrality) restrictions, allowing for contemporaneous interaction between monetary policy and asset prices. By allowing the interest rate and asset prices to react simultaneously to news, we find different roles for house and stock prices in the monetary transmission mechanism. In particular, following a contractionary monetary policy shock, stock prices fall immediately, while the response in house prices is much more gradual. However, the fall in both house prices and stock prices enhances the negative response in output and inflation that has traditionally been found in the literature.Regarding the systematic response in monetary policy, stock prices play a more important role in the interest rate setting in the short run than house prices. As a consequence, shocks to house prices contribute more to GDP and inflation fluctuations than stock price shocks.JEL-codes: C32, E52, E44.

Has the Fed Responded to House and Stock Prices? A Time-Varying Analysis

“…A noteworthy exception is Finocchiaro and von Heideken (2013) who estimate the house price coefficient in a monetary policy rule and find evidence of a positive and significant response in the US in the context of a DSGE model. Bjørnland and Jacobsen (2013) provide evidence on the (conditional) response of interest rates to shocks originating in the stock market and in the housing sector but do not report the coefficients in the interest rate equation.…”

Monetary policy and stock valuation: structural VAR identification and size effects

“…2 In these early studies it is acknowledged that causality may run in both directions (Cooper, 1974;Smirlock and Yawitz, 1985). Given that stock prices, amongst other asset prices, feature in the monetary policy transmission mechanism, it is important to gain a thorough understanding of how monetary policy interacts with stock market developments (Mishkin, 2001;Bjornland and Jacobsen, 2013). This paper re-examines this relationship at both the market and portfolio level using data on portfolios formed on the basis of firm's size (market value).…”

Choques macroeconómicos y los precios de los activos. El caso argentino

“…Pero, dado que en Argentina no se ha seguido una política de metas de inflación (salvo, tal vez, durante un corto lapso con posterioridad a la crisis externa de 2001) no se considera esta hipótesis y se hace, en cambio, el supuesto de que las tasas de interés no reaccionan contemporáneamente a los precios de los activos (ello podría ocurrir, sin embargo, una vez transcurrido el período inicial). Se supone entonces, a diferencia de Bjornland and Jacobsen (2008and 2012, que la autoridad monetaria no considera, para sus decisiones de política monetaria, la información brindada en el corto plazo por los precios de las propiedades y del mercado bursátil.…”

“…De esta forma, dichos precios podrían impactar en el consumo, la inversión y la evolución de las tasas de inflación. A su vez, algunos autores, como Bjornland and Jacobsen (2012), sugieren que el efecto riqueza vinculado con el comportamiento del mercado de valores podría afectar la conducta de los consumidores, en forma análoga a lo que ocurre con los precios de las viviendas, aunque la propensión marginal a consumir sería menor en el primer caso (Case et al, 2005;Carroll et al, 2006). 2 Como destaca Bernanke (2003), para evaluar el impacto de las políticas económicas (y en particular la monetaria) en la economía sería necesario determinar, por un lado, los efectos de estas políticas en los mercados financieros y, por otro, establecer cómo influyen los precios de los activos en el comportamiento de las familias, las empresas y los inversores.…”