Title: Revisiting the monetary policy asset price nexus by means of a novel statistical identification approach
Authors: Hannes Rohloff - University Goettingen (Germany) [presenting]
Helmut Herwartz - Georg-August-University Goettingen (Germany)
Simone Maxand - University of Helsinki (Finland)
Abstract: The aim is to revisit the monetary policy asset price nexus linked to the so-called lean against the wind debate that has recently gained attention. Typically, this issue has been investigated by means of structural VARs relying on a-priori assumptions which are often theoretically not fully supported or which are at odds with the data. We follow a different route and approach identification by detecting least dependent structural shocks under the presumption of non-Gaussianity. The statistically identified shocks coincide with meaningful economic counterparts, and allow a comparison with those of more conventional identification approaches. We provide empirical evidence on the US economy for monetary policy shocks and shocks originating from two asset markets: Equity and housing. The results indicate that contractionary monetary policy shocks have a mildly negative impact on both asset prices. The effect is less pronounced for equity. Vice versa, asset price shocks invoke a pronounced systematic policy response. Moreover, we find considerable differences in the speed of transmission of monetary policy shocks among both asset classes. On the contrary, the macroeconomic effects of asset price shocks appear similar.