The Research On The Effects Of Asset Price On Macroeconomic Fluctuations With Financial Friction Perspective

Business cycle always occurs in the real world,it usually has a diret link with dramatic changes in asset prices,such as real estate and stock.The bubble of asset price burst often causes serious damage to the real economy,and becomes the key to put economy into depression.Especially the US subprime mortgage crisis broke out in 2007,led the world economy into a severe recession.Therefore it is important to try to find the reasons why dramatic changes of asset prices could have tremendous influences on macoreconomic fluctuations,grasp the path and mechanism,and explore the countermeasures.Based on the analysis framework of the New-Keynesian theory,we dissect the path and mechanism of the transimission from asset price(such as real estate and stock)fluctuations to macroeconomy,indicate the key role played by financial markets or financial intermediaries in conducting impacts,point out the reasons why the crisis can be fleetly expanded and spread,and discuss the effectiveness of different monetary policies in stabilizing macroecnomic fluctuations.Finally,we come to the conclusions and offer policy proposals.First,we analyze the main reason driving the change of real estate price and the way that explain macroeconomic fluctuations with financial frictions.By developing a canonical New-Keynesian dynamic stochastic general equilibrium model and using Bayesian estimation based on the date from China,we find that the real estate preference shock is the most important factor in explaining China's macroeconomic fluctuations,it can separately explain about 55.94%,59.47%and 56.59%of the changes of consumption,investment and total output,while it is also the main reason for fluctuations of China's real estate price;although technology shock have a significant influence on China's macroeconomic fluctuations,it cannot fully account for the change of China's real estate price.In addition,using static analysis and comparing the impulse responses of the benchmark model and the counterfactual model,we find the propagating mechanisms of the financial frictions.Second,we define the financial intermediary as a clear and structured sector,introduce it into our framework and try to find why crisis caused by the real estate market can exert a huge influence on the real economy.By developing a canonical NewKeynesian dynamic stochastic general equilibrium model with banking sector,we find that,on the one hand,exogenous shocks,such as real estate default risk,lead to the reduction of bank capital,and banks are forced to reduce the amount of loans to meet the requirements of regulatory authorities.Owing to the reduction of loan supply,the lending interest rate rises,which leads to the contraction of consumption,investment and total output;on the other hand,the decreases of consumption and investment bring about the decling demand for real estate and capital,which makes the prices of real estate and capital go down.Under the influence of "collateral effect",the economy goes into recession.Besides,the continuous development of financial innovation that brings down the loan to value of real estate,and the monetary policy that has chosen to ignore real estate price,aggravate the impact of the crisis on the real economy.Third,we describe the effects of the change of equity price on the business cycle.We study the role of the equity price channel in business cycle fluctuations,and highlights "pledge effect" as a different aspect to general equilibrium model with financial frictions,and,as a result,emphasize the systemic influence of financial markets on the real economy.We develop a canonical New-Keynesian dynamic stochastic general equilibrium model with "pledge effect" and banking sector.We show that under the influence of "pledge effect",stock price shock have impacts on consumption,investment and total social output,and these effects will be significantly strengthened by financial institutions'(mainly banks)balance sheets.Meanwhile,the monetary policy augmented with stock price can avoid high volatility in the stock market and macroeconomy.Finally,we discuss whether a country's monetary policy should respond to asset prices with financial frictions.To answer this question,we develop a canonical NewKeynesian dynamic stochastic general equilibrium model including banking sector,and compare the different effects of the real economy between the monetary policy augmented with asset prices and the monetary policy which does not pay attention to asset prices.The main result is that,the monetary policy augmented with asset prices is more effective in stabilizing economic fluctuations and maintaining economic stability;while the monetary policy that does not pay attention to asset prices,will to a certain extent,promote and amplify the crisis.This paper shows that,in order to prevent the huge effects of asset price volatility on the real economy,we should grasp the following principles:first,we must guard against the systemic risk which is caused by asset price volatility and financial institutions;second,we must improve the anti-risk ability of the banking sector;third,the funding sources of real estates should be increased so as to prevent the banking sector from risk;fourth,think highly of financial innovation which may result in the rise of risk;last but not least,the monetary policy should pay more attention to asset prices.