The relationship between stock prices, house prices and consumption in OECD

This paper analyzes the relationship between stock prices, house prices and consumption using data for 16 OECD countries. The panel data analysis suggests that the long-run responsiveness of consumption to permanent changes in stock prices is higher for countries with a market-based financial system than for countries with a bank-based financial system. Splitting the sample into the 1980s and 1990s further shows an increased sensitivity in the 1990's of consumption to permanent changes in stock prices for both countries with bank-based financial systems as well as countries with market-based financial systems. The relationship between changes in consumption and changes in house prices is positive for the second sample period across all specifications and financial systems.

Interpreting real exchange rate movements in transition countries

Several transition countries have experienced strong real exchange rate appreciations. This paper tests the hypothesis that these appreciations reflect underlying productivity gains in the tradable sector. Using panel data over the period 1993–98, the results show clear evidence of productivity-driven exchange rate movements in the central and eastern European and Baltic countries. Transition countries, particularly the EU accession countries that have begun to catch up, can expect to experience further productivity-driven real exchange rate appreciations. Evidence from a large cross-section of non-transition countries indicates that catching up by one percent will be associated with a 0.4 percent real appreciation.real exchange rates; transition; Balassa-Samuelson effects

Wage Formation in a Cointegrated VAR Model: A Demand and Supply Approach.

Usually cointegrated VAR models of wage formation are analysed in a wage-price setup. However, theoretical wage bargaining models provide the background for a wage-employment setup. The two relations of interest are the labour demand equation from the profit maximizing firms and the (bargained) wage equation from maximizing the Nash product of the wage bargaining process. From the underlying economic model we derive explicit parameter restrictions which are analysed using a multivariate cointegration approach, using quarterly data from Denmark. These restrictions are not rejected and the theoretical model with maximizing agents can be said to give a good description of wage formation in Denmark.

The relationship between stock prices, house prices and consumption in OECD countries

This paper analyzes the relationship between stock prices, house prices and consumption using data for 16 OECD countries. The panel data analysis suggests that the long-run responsiveness of consumption to permanent changes in stock prices is higher for countries with a market-based financial system than for countries with a bank-based financial system. Splitting the sample into the 1980s and 1990s further shows an increased sensitivity in the 1990's of consumption to permanent changes in stock prices for both countries with bank-based financial systems as well as countries with market-based financial systems. The relationship between changes in consumption and changes in house prices is positive for the second sample period across all specifications and financial systems.

How small shocks and heterogeneous expectations can create swings in the exchange rate.

What can explain the persistent fluctuations observed in non-fixed exchange rates? We use a version of the Kareken-Wallace two-country overlapping generations model to explain this empirical phenomenon. The agents use an adaptive learning rule to forecast expected prices in both countries instead of having perfect foresight as in the original Kareken and Wallace model. There are different but constant speeds of adjustment in the two countries. The constant speed of adjustment combined with a small shock to the money supply in one of the countries creates swings in the exchange rate. This is illustrated in various computational experiments.

Factors Driving Risk Premia

This paper assesses the extent to which the fall in risk premia of a number of financial assets, which occurred throughout 2003, was due to improvements in factors specific to individual markets at that time or to general economic fundamentals coupled with OECD-wide abundant liquidity. Regarding the latter two factors, principal component analysis was used here to identify a common trend in risk premia in equity, corporate bond and emerging markets since early 1998. The analysis finds that both economic fundamentals and liquidity have played a statistically significant role in driving the common factor. It also finds that liquidity (measured as the GDP weighted average of M3 of the three major economies less its trend) performs better than similarly weighted short-term interest rates. By spring 2004, the common factor in different risk premia had fallen below what could be explained by economic fundamentals and liquidity ... Les déterminants des primes de risque Ce document examine dans quelle mesure la chute des primes de risque de certains placements financiers au cours de 2003 peut être attribuée à l’amélioration de facteurs spécifiques à certains marchés durant cette période, ou aux fondamentaux associés à l’abondante liquidité dans les pays de l’OCDE. En ce qui concerne ces deux derniers facteurs, une analyse en composantes principales est appliquée afin d’identifier une tendance commune aux primes de risque dans les marchés boursiers, obligataires et les marches émergents depuis le début de 1998. Cette analyse montre qu’aussi bien les fondamentaux que la liquidité ont joué un rôle statistiquement significatif concernant le facteur commun. De plus, la liquidité (évaluée comme la moyenne du M3 dans les trois principales économies pondérée par le PIB, moins la tendance) s’avère comporter un meilleur pouvoir explicatif que les taux d’intérêts à court terme (pondérés de manière similaire). Au printemps 2004, le facteur commun aux ...risk premia, liquidity, factor analysis, principal components, fundamentals, analyse factorielle, fondamentaux, liquidité, primes de risque, analyse en composantes principales