K. N. Raj Library – Content Alerts

Home » Financial markets » How Asset Prices Interact with Bank Credit and Monetary Policy? Evidence from Emerging Market and Developing Economies

How Asset Prices Interact with Bank Credit and Monetary Policy? Evidence from Emerging Market and Developing Economies

Bhupal Singh and Avadhoot R. Nadkarni

RBI WPS (DEPR): 01/2017

he central hypothesis examined in this paper is whether credit shocks are more dominant in affecting asset prices vis-a-vis monetary policy shocks. The paper examines interaction of equity and house prices with macroeconomic factors using a panel VAR framework. Estimated models reveal dominance of monetary policy shock in causing fluctuations in stock prices, while bank credit shock plays greater role in driving house prices. Second, credit shock has sizeable and persistent impact on house prices in contrast to insignificant effect on stock prices. Third, a contractionary monetary policy shock causes decline in both real stock and house prices but the effect is relatively sizeable and persistent on equity prices as policy tightening could turn leverage costlier.

URL: https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=RBI%20Working%20Papers

Courtesy: RBI

Advertisements
%d bloggers like this: