Macroeconomic fundamentals and asset prices – state dependence and implications for the conduct of monetary policy

Current Project



Project Management

Prof. Dr. Kerstin Bernoth
Prof. Dr. Helmut Herwartz

Project Period

January 1, 2019 - December 31, 2022

Commissioned by

German Science Foundation (DFG)

In Cooperation With

University of Göttingen

Noticing the adoption of unconventional measures of monetary policy in major currency areas on the one hand and continuing globalisation and integration of international financial markets on the other hand, we analyse the linkages between monetary policy and asset prices. Apart from excess asset valuation, we consider second order dynamics (uncertainties, tail risks) as specific threats to financial stability which has become an important yardstick for the conduct of domestic monetary policies. We analyse monetary policy spill-overs, the role of exchange rates in the mitigation of monetary policy shocks, the effectiveness of unconventional monetary policy tools, and the role of monetary developments for financial stability. From the methodological side we benefit from recent advances in structural dynamic modelling and aim at the detection of state specific model structures. For purposes of structural analysis in short samples (covering, e.g., periods of monetary policies at ZLB), we exploit the panel dimension in an innovative manner. In a categorical sense, our research agenda allows for a structuring along three dimensions: a) Monetary policy and uncertainties, b) Monetary policy transmission and spillovers, and c) State dependent and panel SVARs.

DIW Team