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Role of credit and monetary policy in determining asset prices: Evidence from emerging market economies

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  • Singh, Bhupal
  • Nadkarni, Avadhoot R.

Abstract

We examine the relative dominance of credit and monetary policy shocks in influencing asset prices in emerging markets. Estimates from panel VAR models for 22 EMEs provide evidence of a significant impact of bank credit on house prices in contrast to trivial impact on stock prices, possibly due to prudential regulations on banks’ exposure to stock markets. Contractionary monetary policy triggers sizeable and persistent decline in stock than housing prices as higher interest rates may render the funding of leverage costlier. Global shocks play an important role in explaining fluctuations in domestic stock prices rather than house prices since the latter class of asset is largely non-tradable across countries.

Suggested Citation

  • Singh, Bhupal & Nadkarni, Avadhoot R., 2020. "Role of credit and monetary policy in determining asset prices: Evidence from emerging market economies," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818302900
    DOI: 10.1016/j.najef.2018.11.003
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    Cited by:

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    2. repec:fst:rfsisf:v:8:y:2023:i:14:p:84-97 is not listed on IDEAS
    3. Zhang, Xiaoyu & Pan, Fanghui, 2021. "Asymmetric effects of monetary policy and output shocks on the real estate market in China," Economic Modelling, Elsevier, vol. 103(C).
    4. Snyder, Tricia Coxwell & Vale, Sofia, 2022. "House prices and household credit in the Eurozone: A single monetary policy with dissonant transmission mechanisms," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 243-256.
    5. Rosalinda Arriaga Navarrete. & Miriam Sosa Castro. & Abigail Rodríguez Nava., 2020. "Impactos monetarios sobre la rentabilidad del mercado accionario en México: Un análisis de cambio de régimen Markoviano. (Monetary Impacts on the Mexican Stock Market Returns: A Markov Switching Appro," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 187-216, November.

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    More about this item

    Keywords

    Asset prices; Bank credit; Monetary policy; Emerging market economies;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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