Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries

30 Pages Posted: 4 Feb 2008

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Walter Orth

University of Cologne - Department of Statistics and Econometrics

Date Written: December 2007

Abstract

The belief that house prices are driven by specific regional and institutional variables and not at all by monetary conditions is so entrenched with some market participants and some commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. This paper investigates the relationship between global excess liquidity and asset prices on a global scale: How important is global liquidity? How are asset (especially house) prices and other important macro variables like consumer prices affected by global monetary conditions? This paper analyses the international transmission of monetary shocks with a special focus on the effects of a global monetary aggregate (global liquidity) on consumer prices and different asset prices.We estimate a variety of VAR models for the global economy using aggregated data that represent the major OECD countries. The impulse responses show that a positive shock to global liquidity leads to permanent increases in the global GDP deflator and in the global house price index, while the latter reaction is even more distinctive. Moreover, we find that there are subsequent spillovers to consumer prices. In contrast, we are not able to find empirical evidence in favour of the hypothesis that the MSCIWorld index as a measure of stock prices significantly reacts to changes in global liquidity.

Keywords: Global liquidity, inflation control, international spillovers, asset prices, VAR analysis

JEL Classification: E31, E52, F01, F42

Suggested Citation

Belke, Ansgar Hubertus and Orth, Walter, Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries (December 2007). Ruhr Economic Paper No. 37, Available at SSRN: https://ssrn.com/abstract=1089102 or http://dx.doi.org/10.2139/ssrn.1089102

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Walter Orth

University of Cologne - Department of Statistics and Econometrics ( email )

Albertus-Magnus-Platz
Cologne, DE 50923
Germany
(0049) 0221-470-6561 (Phone)

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