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Low Interest Rates and Asset Price Fluctuations: Empirical Evidence
Ali, Bano ; Horváth, Roman (advisor) ; Vácha, Lukáš (referee)
The thesis focuses on estimating the effect of expansionary monetary policy concerning asset prices, specifically house and stock prices as they are of pri- mary importance in financial markets. A structural vector autoregressive model is used including data for the Euro Area, the United Kingdom, and the United States from 2007 to 2017. Moreover, instead of short-term nominal interest rate, the shadow policy rate is used to measure the stance of both conventional and unconventional monetary policy. It is useful when policy rates of central banks are at or near zero as it neglects the zero-lower bound. Using both impulse response functions and forecast error variance decomposition, results suggest that higher interest rates are indeed associated with lower asset prices. That is confirmed by including two different estimates of shadow rates into the model and observing the effect for two specific types of assets. More precisely, house prices react almost immediately showing the most substantial decrease for the United Kingdom, while stock prices slightly increase at first and de- crease afterward with similar size of the effect for all areas under consideration. Finally, the discussion of how the monetary authority should react to asset price fluctuations is provided, summarizing the vast amount of literature...
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Rare Disasters and Asset Pricing Puzzles
Kotek, Martin ; Maršál, Aleš (advisor) ; Korbel, Václav (referee)
The impact of rare disasters on equity premium and term premium in a New Keynesian DSGE model is explored in the thesis. Andreasen's (2012) model with Epstein-Zin preferences, bonds and a rare disaster shock in total factor productivity process is extended by a variable capital stock and an equity-type asset. We find that the variable capital significantly changes behavior of the model, capital depreciation must be substantially increased to counter the effect of variable capital and stochastic mean of inflation increases. The model calibrated to the US economy and a high risk aversion generates 10-year term premium of 90 basis points, rare disasters increase the premium only by 3 basis points. The equity premium is 163 basis points and rare disasters increase it also only by 3 basis points. The model with a low coefficient of relative risk aversion of 5.5 generates negative risk premia. Rare disasters increase the risk premia by mere 4 basis points in comparison to a model with i.i.d. shocks. Powered by TCPDF (www.tcpdf.org)
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Asset Prices, Network Connectedness, and Risk Premium
Procházková, Vendula ; Baruník, Jozef (advisor) ; Kukačka, Jiří (referee)
This diploma thesis introduces the measures of network connectedness in the context of asset pricing. It proposes an asset pricing model in which the factor of connectedness is included as one of the risk factors together with the three Fama-French factors. The goal of the analysis is to examine whether the con- nectedness represents a signifcant risk factor that should be considered while determining the risk premium of the portfolio in diferent sectors in the market. Using the realized volatilities and returns of 496 assets of SP 500 index over the period 2005 - 2018, that are divided into 11 sectors, we frstly determine the linkages of connectedness between the assets in the same sector. Applying Fama-MacBeth two-step regression model, we explore the signifcance of the connectedness factor for the determination of the risk premium. We argue that the sector overall connectedness represents a signifcant risk in most of the sec- tors and should be therefore taken into account by the investors in all sectors. Moreover, the total directional connectedness that captures the spillover of shocks to one asset from the other assets in the sector, is a signifcant risk fac- tor that should increase the risk premium of the portfolio, especially in sectors such as the fnancial, health care, consumer...
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Low Interest Rates and Asset Price Fluctuations: Empirical Evidence
Ali, Bano ; Horváth, Roman (advisor) ; Vácha, Lukáš (referee)
The thesis focuses on estimating the effect of expansionary monetary policy concerning asset prices, specifically house and stock prices as they are of pri- mary importance in financial markets. A structural vector autoregressive model is used including data for the Euro Area, the United Kingdom, and the United States from 2007 to 2017. Moreover, instead of short-term nominal interest rate, the shadow policy rate is used to measure the stance of both conventional and unconventional monetary policy. It is useful when policy rates of central banks are at or near zero as it neglects the zero-lower bound. Using both impulse response functions and forecast error variance decomposition, results suggest that higher interest rates are indeed associated with lower asset prices. That is confirmed by including two different estimates of shadow rates into the model and observing the effect for two specific types of assets. More precisely, house prices react almost immediately showing the most substantial decrease for the United Kingdom, while stock prices slightly increase at first and de- crease afterward with similar size of the effect for all areas under consideration. Finally, the discussion of how the monetary authority should react to asset price fluctuations is provided, summarizing the vast amount of literature...
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Rare Disasters and Asset Pricing Puzzles
Kotek, Martin ; Maršál, Aleš (advisor) ; Korbel, Václav (referee)
The impact of rare disasters on equity premium and term premium in a New Keynesian DSGE model is explored in the thesis. Andreasen's (2012) model with Epstein-Zin preferences, bonds and a rare disaster shock in total factor productivity process is extended by a variable capital stock and an equity-type asset. We find that the variable capital significantly changes behavior of the model, capital depreciation must be substantially increased to counter the effect of variable capital and stochastic mean of inflation increases. The model calibrated to the US economy and a high risk aversion generates 10-year term premium of 90 basis points, rare disasters increase the premium only by 3 basis points. The equity premium is 163 basis points and rare disasters increase it also only by 3 basis points. The model with a low coefficient of relative risk aversion of 5.5 generates negative risk premia. Rare disasters increase the risk premia by mere 4 basis points in comparison to a model with i.i.d. shocks. Powered by TCPDF (www.tcpdf.org)
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Can Monetary Policy Create Asset Price Bubbles?
Mareček, Jan ; Horváth, Roman (advisor) ; Dědek, Oldřich (referee)
The objective of the thesis is to find out whether expansionary monetary policy creates an upward pressure on asset prices and can thus create asset price bubbles, or more precisely significantly contribute to their creation. In doing so, we test the significance and the sign of coefficient on monetary policy stance indicator as a determinant of real estate and stock prices on 19 OECD countries quarterly panel data since 1980. Further we assess periods of real estate and stock price bubbles and periods of expansionary monetary policy and examine their relationship. The asset price bubbles are assessed on the basis of relevant price indices developments without examining the underlying fundamentals. Based on our results it appears that expansionary monetary policy has a positive effect on real estate prices and can thus contribute to formation of real estate bubbles. The effect on stock prices is ambiguous and mostly statistically insignificant. By examining the relationship between assessed asset price bubbles and periods of expansionary monetary policy we found out that monetary expansion is neither sufficient nor necessary condition for formation of asset price bubbles but also that there is a relatively strong relationship between these events. JEL Classification C23, E43, E52, E58, G12, N10, N20...
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Monetary policy and asset prices.
Šperl, Adam ; Mandel, Martin (advisor) ; Houštecký, Martin (referee)
The goal of this thesis is to demonstrate why it is so difficult to find answer whether monetary policy should include asset prices into monetary rule and therefore increase financial stability. This is because monetary policy is potentially able to prevent the emergence of price bubbles. However, definition of bubbles is problematic itself, as well as identification, even ex-post. It appears that the inclusion of asset prices in monetary policy can reduce the variability of output, at the cost of increasing variability of inflation. The necessary condition is the ability to influence asset prices through monetary policy and early identification of imbalances. Furthermore, on empirical data from the Czech Republic and the USA is shown in the example of the 2008 crisis, that the central banks can use the warning signals from the market assets (eg. real estate market). But current monetary policy is not focused on financial stability. Macroprudential policy, combined with to some extent discretionary monetary policy represent a real and likely trajectory of future economic policy in the form of a new framework of care for financial stability.
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