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Assessing the link between price and financial stability

Author

Listed:
  • Christophe Blot

    (Ofce,Sciences-po)

  • Jérôme Creel

    (Ofce, Sciences-po, Escp Europe)

  • Paul Hubert

    (Ofce,sciences-po)

  • Fabien Labondance

    (Ofce, Sciences-po)

  • Francesco Saraceno

    (Ofce: Sciences-po, LUISS)

Abstract
This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J Schwartz’s conventional wisdom that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss the empirical appropriateness of the leaning against the wind monetary policy approach.

Suggested Citation

  • Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance & Francesco Saraceno, 2014. "Assessing the link between price and financial stability," Documents de Travail de l'OFCE 2014-02, Observatoire Francais des Conjonctures Economiques (OFCE).
    • Handle: RePEc:fce:doctra:1402
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    References listed on IDEAS

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    More about this item

    Keywords

    Price stability; Financial stability; DCC-GARCH; VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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