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Asset Booms and Macroeconomic Outcomes

Asia-Pacific Social Science Review

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Field Value
 
Title Asset Booms and Macroeconomic Outcomes
 
Creator Gochoco-Bautista, Maria Socorro; University of the Philippines
 
Subject Finance; Social Science
global financial crisis, asset booms, real estate boom, housing boom, subprime mortgage
 
Description The US financial crisis was largely unexpected, with effects that have not been confined to the financial sector and that have extended well beyond its borders. This highlights the need for central bankers to understand the causes of the crisis in order to determine the best possible responses to the present situation. The role of asset prices in the economy and its implications for the conduct of monetary policy is essential. This paper examines whether asset price booms significantly raise the probability at the margin of the realization of extreme outcomes in output and prices. It also assesses whether the worst outcomes are just as likely to occur as the good ones, using quarterly data for eight East Asian economies. Extreme outcomes are found in the tails of a probability distribution. The Expected Tail Loss (ETL) derived from the set of worst outcomes is the expected loss conditional on being in the lowest quantile of the distribution. In the case of the gross domestic product (GDP), for example, expected outputs substantially below trend are found in the left tail of the probability distribution of the GDP gap. Similarly, expected price level outcomes substantially above trend are found in the right tail of the probability distribution of the price level gap. The empirical results of the study show that: (1) asset price booms in housing and equity markets, especially in housing, significantly raise the probability at the margin that the real output- and price-level gaps will be in the tails of worst outcomes of their respective distributions; (2) the risks arising from asset booms are not symmetric, as only the risk of particularly bad outcomes increases; and (3) since real output and price-level gaps exhibit
 
Publisher De La Salle University
 
Contributor —
 
Date 2009-06-19
 
Type Peer-reviewed Article
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Format application/pdf
 
Identifier http://www.philjol.info/philjol/index.php/APSSR/article/view/1056
10.3860/apssr.v9i1.1056
 
Source Asia-Pacific Social Science Review; Vol 9, No 1 (2009): Papers from the Sixth Secretary Alfonso Yuchengco Policy Conference; 25-34
 
Language en
 
Coverage Philippines; Global
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