Asset price misalignments and the role of money and credit

This paper contributes to the literature on the properties of money and creditindicators for detecting asset price misalignments. After a review of the evidence inthe literature on this issue, the paper discusses the approaches that can be consideredto detect asset price busts. Considering a sample of 17 OECD industrialised countriesand the euro area over the period 1969 Q1 – 2008 Q3, we construct an asset pricecomposite indicator which incorporates developments in both the stock price andhouse price markets and propose a criterion to identify the periods characterised byasset price busts, which has been applied in the currency crisis literature. Theempirical analysis is based on a pooled probit-type...