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This paper contributes to the analysis on the properties of money and credit indicators for detecting asset price misalignments. After a literature review, the paper discusses several approaches useful for detecting asset price busts. Considering a sample of 17 Organization for Economic Cooperation and Development industrialized countries and the euro area over the period 1969 Q1–2008 Q3, an asset price composite indicator incorporating developments in both stock and house price markets is constructed and a criterion to identify the periods characterized by asset price busts is proposed. The empirical analysis is based on a pooled probit‐type approach with several monetary, financial and real variables. According to statistical tests, credit aggregates (either in terms of annual changes or growth gap), changes in nominal long‐term interest rates and investment‐to‐GDP ratios jointly with either house or stock price dynamics turn out to be the best indicators helping to forecast asset price busts up to eight quarters in advance. Some robustness checks indicate that both the method used to identify asset price busts and the choice of the binary variable are reliable.

The paper provides a systematic comparison of the Eurosystem, the U.S. Federal Reserve, and the Bank of Japan. These monetary authorities exhibit somewhat different status and tasks, which reflect different historical conditions and national characteristics. However, widespread changes in central banking practices in the direction of greater independence and increased transparency, as well as changes in the economic and financial environment over the past 15-20 years, have contributed to reduce the differences among these three world's principal monetary authorities. A comparison based on simple "over-the-counter" policy reaction functions shows no striking differences in terms of monetary policy implementation. Copyright 2007 The Ohio State University.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe main aim of this paper is to apply a method based on fundamentals ─ which has already been applied in the stock market analysis ─ to detect boom/bust in the housing market, with a focus on the euro area. In this context, an underlying model is developed and tested. It turns out that the user cost rate, a demographic variable, the unemployment rate, disposable income (or disposable income per capita), the debt-to-income ratio and, finally, the housing stock are fundamental variables which significantly explain house price developments. Booms and busts are then selected as episodes when the house price index deviates excessively from the levels which would be implied by these economic fundamentals. In addition, a cross-check of the boom/bust episodes based on this method and other statistical and fundamental ones is carried out in order to substantiate the results obtained. Finally, money and credit aggregates are included in the specifications and are found to be useful in explaining boom/busts cycles in house prices. Keywords: house prices, booms, busts, quantile regressions, monetary and credit aggregates JEL-classification: E37, E44, E511 Non-technical summaryDuring the past decades, asset markets have played an increasingly important role in many economies, and large swings in asset prices have become a relevant issue for policy-makers, thus bringing new attention to the linkages between monetary policy and asset markets. Monetary policy has been cited as both a possible cause of asset price booms and a tool for defusing those booms before they can cause macroeconomic instability. Consequently, economists and policymakers have focused on how monetary policy might cause an asset price boom or turn a boom caused by real phenomena, such as an increase in aggregate productivity growth, into a "bubble", which may burst unexpectedly, thus rendering damage to the economy.The novelty of this study lies in the application of the methodology used in Machado and Sousa (2006) to house prices developments, by means of selecting underlying fundamental variables and applying the quantile regression approach to detect booms and busts. Our main results are as follows.First, house price developments are significantly explained by the user cost rate (with a negative coefficient), a demographic variable (working population or labour force) which affects the house prices positively, the unemployment rate (with a negative...

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