A0462
Title: A long-run approach to money, unemployment, and asset prices
Authors: Kuk Mo Jung - Division of International Studies, Hanyang University (Korea, South) [presenting]
Abstract: A long-run relationship between money (inflation or interest rates), unemployment, and asset prices are studied. Using panel data, we first document novel evidence that a statistically significant joint relationship between the three variables exists. Specifically, three long-run relationships are found: 1. A positive relationship between inflation (or interest rates) and unemployment; 2. A negative relationship between unemployment and asset prices; 3. A negative relationship between inflation (or interest rates) and asset prices. These findings are robust to a number of different estimation strategies. We provide a unified framework that incorporates money, unemployment, and asset prices in a micro-founded way. The model predicts the empirically found joint relationship in the long run. The calibration exercise also shows that the model can account for a sizable portion of the long-run joint relationship among those three variables for major OECD countries over the post WW-II period. Lastly, the model suggests some novel and interesting policy implications, especially for open market operations in equities, one of the newly debated topics in the aftermath of global financial crisis.
