Monetary Policy, Asset Prices and Macro-economic Conditions: A Panel VAR Study

1
Monetary Policy, Asset Prices and Macro-economic
Conditions A Panel VAR Study by K.
Assenmache-Wesche and S. Gerlach Discussion by
C. Goodhart The exercise is a study of
inter-relationships, using a Panel VAR approach,
amongst aggregate economic variables and asset
prices in 17 countries. Complements and extends
Goodhart and Hofmann (2008) by including equity
prices and slightly different econometric
techniques. Broadly welcome.
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• Econometric Nit-Picks
• Mean Group estimators vs Fixed Effect estimators.
• Property prices I 2, i.e. level of property
  prices non-stationary. Surely there has to be a
  long run (cointegrating) relationship between
  property prices and nominal incomes.
• A short sample problem?

3

• General Problems of both papers
• Short sample, late 1980s boom, 1990-92 recession,
  1992-2006 Golden Age. Adding 2007-9 may make a
  large difference.
• The Rudebusch critique of VARs. Re-estimate
  using Luca Benati time-varying coefficients.
• Bank credit (especially in USA) not adjusted for
  originate to distribute and securitisation.
• Property prices slow to adjust to credit. Even
  slower in downturn. Transactions rather than
  prices?

4

• Policy Issues
• Do not use interest rates to stabilise asset
  prices. Use other macro-prudential,
  counter-cyclical instruments. What are they?
• Outline future expectations for policy rates?
  Woodford vs Shin.
• The importance of housing (Ed Leamer). Check
  momentum trading, (public sector enters
  foreclosure sales enforce maximum LTV in
  upturn).