Response of P to MSW
Response of M to MSW
Response of MSW to IS
Figure 5: Impulse response analysis; model with house prices and stocks
Response of MSW to M
with respect to money demand. As rising share prices contribute to wealth, and with
money demand depending more on wealth than on income, this effect makes sense
from a theoretical perspective.17 Note that these results are robust to an estimation
of the model in which only share prices and not the house price index are included.
We propose at least two possible interpretations for our finding that stock prices
do not react to monetary conditions. Either share prices are difficult to model ade-
quately within a standard macroeconomic framework or they are mainly determined
by fundamental criteria like future cash flow expectations or price earnings ratios
assuming that the latter are independent from monetary policy. Thus, the special
role we found for house prices among asset prices in our theoretical considerations
is clearly confirmed in our empirical investigation.
17See European Central Bank (2007) for some recent empirical findings that show a close link
between money and wealth in the Euro area.
22
More intriguing information
1. The problem of anglophone squint2. SAEA EDITOR'S REPORT, FEBRUARY 1988
3. THE WAEA -- WHICH NICHE IN THE PROFESSION?
4. The name is absent
5. Measuring Semantic Similarity by Latent Relational Analysis
6. Towards a Strategy for Improving Agricultural Inputs Markets in Africa
7. The Role of State Trading Enterprises and Their Impact on Agricultural Development and Economic Growth in Developing Countries
8. AJAE Appendix: Willingness to Pay Versus Expected Consumption Value in Vickrey Auctions for New Experience Goods
9. The name is absent
10. THE WELFARE EFFECTS OF CONSUMING A CANCER PREVENTION DIET