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Liquidity Characteristics, Implicit Information of Asset Prices and Monetary Policy in China

Author

Listed:
  • Xiao Weiguo

    (Economic and Management School of Wuhan University.)

  • Zhao Yang

    (Wuhan Branch of the People’s Bank of China.)

  • Yuan Wei

    (Economic and Management School of Wuhan University, Luojiashan, Wuhan, China.)

Abstract

This paper empirically analyzes the liquidity characteristics of asset price boom-busts and the implicit information of asset prices in China during the period 1998-2011. The results indicate that liquidity plays an important role in asset price cycles and asset prices contain specific information of future output and inflation. Housing price booms are more consistent with credit expansion than stock price. Likewise, housing price has stable positive connection with future output gap and inflation relative to stock price. Based on the above results, the Chinese monetary policy should intervene in asset prices misalignment when in need, even targeting at housing price as conditions permit. Besides, credit control should be adopted to restrain housing price effectively.

Suggested Citation

  • Xiao Weiguo & Zhao Yang & Yuan Wei, 2013. "Liquidity Characteristics, Implicit Information of Asset Prices and Monetary Policy in China," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 56-66, December.
    • Handle: RePEc:rjr:romjef:v::y:2013:i:4:p:56-66
    as

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    References listed on IDEAS

    as
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    3. Dieter Gerdesmeier & Hans‐Eggert Reimers & Barbara Roffia, 2010. "Asset Price Misalignments and the Role of Money and Credit," International Finance, Wiley Blackwell, vol. 13(3), pages 377-407, December.
    4. Huang Yiping & Wang Xun & Hua Xiuping, 2010. "What Determine China’s Inflation?," Macroeconomics Working Papers 22770, East Asian Bureau of Economic Research.
    5. repec:bla:intfin:v:5:y:2002:i:2:p:139-64 is not listed on IDEAS
    6. Detken, Carsten & Adalid, Ramón, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series 732, European Central Bank.
    7. Katrin Assenmacher & Stefan Gerlach, 2008. "Financial Structure and the Impact of Monetary Policy on Asset Prices," Working Papers 2008-16, Swiss National Bank.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    liquidity characteristics; asset prices; monetary policy; COBS approach;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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