Asset prices and monetary policy
Subtitle: booms and fat tails in East Asia
By: by Maria Socorro Gochoco-Bautista.
Contributors: Bank for International Settlements. Monetary and Economic Dept.
Series: BIS working papers -- no. 243
Publisher: Bank for International Settlements
Published: 2008
Place of publication: Basel, Switzerland
Language: eng
Format: Electronic resource
Description: Do housing and equity booms significantly raise the probability of extremely bad outcomes at the margin? This study addresses this question for a group of 8 East Asian countries. The main findings are the following: (i) Asset price booms in housing and equity markets, either separately or jointly but especially in housing, significantly raise the probability at the margin that (a) the real output gap will be in the left tail of its distribution, in which output is significantly below trend, and (b) the price-level gap will be in the right tail of its distribution, in which the price level is significantly above trend. At the margin, the risk of the occurrence of these particular tail events due to asset price booms is largely asymmetric and does not apply to the tails of good outcomes; and (ii) Expected real output and price level outcomes that are either obtained without conditioning on asset price booms or are obtained conditional on asset price booms using the normal approximation underestimate the risk of tail events and lead to less pessimistic but misleading inferences. One implication for monetary policy is that an approach that is ex-ante more compatible with risk management may be appropriate.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"January 2008."

"Monetary and Economic Department."

Includes bibliographical references.

Also available in print.

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