Macroeconomic Effects of Asset-Price Shocks in a Globalized Financial Market


  • Vincenzo Quadrini

    1. University of Southern California, Los Angeles, CA, USA
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    • I would like to thank three anonymous referees, and the guest editor, who have provided important suggestions for the revision of the manuscript. I am also affiliated with the Centre for Economic Policy Research, London, UK.


In this paper, I study a model in which shocks to asset prices affect the real sector of the economy through a credit channel. As financial markets become internationally integrated, the economy becomes less vulnerable to domestic asset-price shocks, but more vulnerable to foreign asset-price shocks. To the extent that monetary policy stabilization is feasible and desirable, the globalization of financial markets shifts the focus of monetary policy from domestic asset prices to worldwide asset prices.