TY  - JOUR
AU  - Bordo,Michael D.
AU  - Dueker,Michael J.
AU  - Wheelock,David C.
TI  - Aggregate Price Shocks and Financial Instability: An Historical Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7652
PY  - 2000
Y2  - April 2000
UR  - http://www.nber.org/papers/w7652
L1  - http://www.nber.org/papers/w7652.pdf
N1  - Author contact info:
Michael D. Bordo
Department of Economics
Rutgers University
New Jersey Hall
75 Hamilton Street
New Brunswick, NJ 08901
Tel: 732/822-7152
Fax: 732/932-7416
E-Mail: bordo@econ.rutgers.edu

Michael J. Dueker
Russell Investments
909 A Street
Tacoma, WA 98402
E-Mail: MDueker@Russell.com

David C. Wheelock
Research Division
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, MO 63166-0442
Tel: (314) 444-8570
Fax: (314) 444-8731
E-Mail: david.c.wheelock@stls.frb.org
AB  - This paper presents empirical evidence on the hypothesis that aggregate price disturbances cause or worsen financial instability. We construct two annual indexes of financial conditions for the United States covering 1790-1997, and estimate the effect of aggregate price shocks on each index using a dynamic ordered probit model. We find that price level shocks contributed to financial instability during 1790-1933, and that inflation rate shocks contributed to financial instability during 1980-97. Our research indicates that the size of the aggregate price shocks needed to substantially alter financial conditions depends on the institutional environment, but that a monetary policy focused on price stability would be conducive to financial stability.
ER  -