How Asset Prices Interact with Bank Credit and Monetary Policy? Evidence from Emerging Market and Developing Economies
RBI Working Paper Series No. 01: How Asset Prices Interact with Bank Credit and Monetary Policy? Evidence from Emerging Market and Developing Economies
By Bhupal Singh and Avadhoot R. Nadkarni
The Reserve Bank of India placed on its website today a Working Paper titled “How Asset Prices interact with Bank Credit and Monetary Policy? Evidence from Emerging Market and Developing Economies“. The paper is written by Bhupal Singh and Avadhoot R. Nadkarni under the Reserve Bank of India Working Paper Series.
The 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 in respect of 22 large Emerging Market and Developing Economies covering the period 1995:01 to 2014:04. 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.
* The Reserve Bank of India introduced the RBI Working Papers series in March 2011. These papers present research in progress of the staff members of the Reserve Bank and are disseminated to elicit comments and further debate. The views expressed in these papers are those of authors and not of the Reserve Bank of India. Comments and observations may kindly be forwarded to authors. Citation and use of such papers should take into account its provisional character.
Alpana Killawala
Principal Adviser
Download Working Paper Click Here >>
Engagement of 'Young Professional' in the office of the PCCT Bihar & Jharkhand Engagement of 'Young Professional' in the office…
CGPDTM invites applications for hiring contractual manpower and Young Professionals The Controller General Patents, Designs & Trade Marks has invited…
Sundry creditors outstanding in books can’t be treated income u/s 41(1) merely because recovery was barred by limitation - ITAT…
For claiming exemption u/s 11, assessee is required to furnish return of income within time allowed u/s 139 and not…
FAQs on amendment proposed to rates of Tax Collection at Source u/s 394(1) of the Income-tax Act, 2025 Income Tax…
FAQs on amendment proposed in Updated return provisions under section 263(6) of Income Tax Act 2025 by Budget 2026-27 Income…