Do housing and equity booms significantly raise the probability of extremely bad outcomes at the margin? This study addresses this question for a group of 8 East Asian countries. The main findings are the following: (i) Asset price booms in housing and equity markets, either separately or jointly but especially in housing, significantly raise the probability at the margin that (a) the real output gap will be in the left tail of its distribution, in whichoutput is significantly below trend, and (b) the price-level gap will be in the right tail of its distribution, in which the price level is significantly above trend. At the margin, the risk of the occurrence of these particular tail events due to asset price booms is largely asymmetric and doesnot apply to the tails of good outcomes; and (ii) Expected real output andprice level outcomes that are either obtained without conditioning on assetprice booms or are obtained conditional on asset price booms using the normal approximation underestimate the risk of tail events and lead to less pessimistic but misleading inferences. One implication for monetary policy is that an approach that is ex-ante more compatible with risk management may be appropriate.
|Keywords:||Azija, monetarna politika, finančni trg, aktiva, cena, bruto domači proizvod, indeksi, Asia, monetary policy, financial market, assets, price, gross domestic product, indexes|
|Work type:||Not categorized (r6)|
|Organization:||EF - Faculty of Economics|
|Publisher:||Bank for International Settlements, Monetary and Economic Department|
|Number of pages:||46 str.|
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