instead of the national perspective is more important when monetary transmission
mechanisms have to be identified and interpreted. For instance, Ciccarelli und Mo-
jon (2005) apply a factor analysis to macroeconomic data of 22 OECD countries and
establish that seventy percent of the variance of the inflation rates of these countries
can be traced back to a common factor. Moreover, the same authors find empirical
evidence in favour of a robust error-correction mechanism, meaning that deviations
of national inflation from global inflation are corrected over time. They conclude
that national inflation is to a large degree a global phenomenon.
Borio and Filardo (2007) deliver a similar result. Referring to their empirical
results, they argue that (a) the traditional way of modeling inflation is too country-
centered, (b) a global approach is more adequate and that (c) the importance of
global factors has increased significantly more recently. One important global factor,
for instance, is certainly represented by the mounting pressure enacted by the ever
higher degree of competition on the international goods and labour markets - a
phenomenon which has to be mainly ascribed to globalisation. It appears fair to say
that the globalisation process has contributed to the decrease of inflation rates since
the eighties (and that this puts the contribution of central banks on the agenda
again).2 It goes without saying that we do not take the view that the national
perspective is completely negligible. Instead, we emphasize in our paper that a
global model, as estimated in the econometric section of our paper, may deliver
additional relevant insights which certainly cannot be gathered if one concentrates
solely on the national level and neglects global liquidity developments.
3.2 Monetary policy and house prices
While there is some literature available on the impact of house price developments
on the macroeconomy3 and on the role of fundamental factors other than monetary
policy for house price developments (Catte et al., 2004, Egert and Mihaljek, 2007),
2Vgl. Rogoff (2003).
3 Monetary policy driven rising house prices may drive consumer spending and thus, aggre-
gate demand and inflation via balance sheet and credit-channel effects - more potential collateral
meaning lower risk premia in this context via the Bernanke/Gertler financial accelerator frame-
work. According to Gros (2007), the most direct link between housing prices and domestic demand
might be construction activity and in particular the construction of houses (dwellings).