Financial Structure and the Impact of Monetary Policy on Asset Prices

Katrin Assenmacher-Wesche and Stefan Gerlach

Issue
2008-16

Pages
44

JEL classification
C23, E52

Keywords
asset prices, monetary policy, panel VAR

Year
2008

We study the responses of residential property and equity prices, inflation and economic activity to monetary policy shocks in 17 countries, using data spanning 1986-2006, using single-country VARs and panel VARs in which we distinguish between groups of countries depending on their financial systems. The effect of monetary policy on property prices is only about three times as large as its impact on GDP. Using monetary policy to guard against financial instability by offsetting asset-price movements thus has sizable effects on economic activity. While the financial structure influences the impact of policy on asset prices, its importance appears limited.