Ansgar Belke, Professor, Dr., University of Duisburg-Essen, Universitaetsstr. 12, Essen, 45117, Germany
Global monetary dynamics has been particularly strong in recent years. At the same time, house prices in many OECD countries increased sharply, significantly outpacing the relatively subdued development in consumer prices. In this paper we argue that different price elasticities on asset and consumer markets help to explain the observed relative price change between assets and consumer goods. Using a VAR analysis and aggregated data for the major OECD countries, our empirical results are supportive of this relationship. Both house and consumer prices are determined by global monetary conditions; however, while global liquidity shocks lead to relatively fast responses in global house prices, significant responses of the global CPI index to money shocks occur only after long time lags. In addition, we find subsequent spillovers from asset prices to consumer prices on a global scale.
Web Page:
www.makro.uni-essen.de/pdf/global_liquidity_180308.pdf