Detail práce

Low Interest Rates and Asset Price Fluctuations: Empirical Evidence

Autor: Mgr. Bano Ali
Rok: 2018 - zimní
Vedoucí: prof. Roman Horváth Ph.D.
Typ práce: Diplomová
Ekonomická teorie
Jazyk: Anglicky
Stránky: 92
Abstrakt: The thesis focuses on estimating the effect of expansionary monetary policy
concerning asset prices, specifically house and stock prices as they are of primary
importance in financial markets. A structural vector autoregressive model
is used including data for the Euro Area, the United Kingdom, and the United
States from 2007 to 2017. Moreover, instead of short-term nominal interest
rate, the shadow policy rate is used to measure the stance of both conventional
and unconventional monetary policy. It is useful when policy rates of central
banks are at or near zero as it neglects the zero-lower bound. Using both
impulse response functions and forecast error variance decomposition, results
suggest that higher interest rates are indeed associated with lower asset prices.
That is confirmed by including two different estimates of shadow rates into the
model and observing the effect for two specific types of assets. More precisely,
house prices react almost immediately showing the most substantial decrease
for the United Kingdom, while stock prices slightly increase at first and decrease
afterward with similar size of the effect for all areas under consideration.
Finally, the discussion of how the monetary authority should react to asset
price fluctuations is provided, summarizing the vast amount of literature on
the topic about ’lean vs. clean’ debate. In conclusion, after the crisis, there is
strong support for the argument that monetary authority should consider the
development of asset markets as the center viewpoint of the macroeconomic




Patria Finance
Česká Spořitelna