Monetary Policy, Term Structure and Asset Return: Comparing REIT, Housing and Stock

Kuang-Liang Chang, Nan-Kuang Chen and Charles Ka Yui Leung

Online First™, 11 March 2010


This paper confirms that a regime-switching model out-performs a linear VAR model in terms of understanding the system dynamics of asset returns. Impulse responses of REIT returns to either the federal funds rate or the interest rate spread are much larger initially but less persistent. Furthermore, the term structure acts as an amplifier of the impulse response for REIT return, a stabilizer for the housing counterpart under some regime, and, perhaps surprisingly, almost no role for the stock return. In contrast, GDP growth has very marginal effect in the impulse response for all assets.

Keywords  Monetary policy – Term structure – REITs – House prices – Regime-dependent – Yield curve – Markov regime switching

JEL Classification  E5 – G0 – R0

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