Does Expansionary Monetary Policy Cause Asset Price Booms; Some Historical and Empirical Evidence

Michael Bordo and John Landon-Lane ()

No 19585, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we investigate the relationship between loose monetary policy, low inflation, and easy bank credit with asset price booms. Using a panel of up to 18 OECD countries from 1920 to 2011 we estimate the impact that loose monetary policy, low inflation, and bank credit has on house, stock and commodity prices. We review the historical narratives on asset price booms and use a deterministic procedure to identify asset price booms for the countries in our sample. We show that "loose" monetary policy - that is having an interest rate below the target rate or having a growth rate of money above the target growth rate - does positively impact asset prices and this correspondence is heightened during periods when asset prices grew quickly and then subsequently suffered a significant correction. This result was robust across multiple asset prices and different specifications and was present even when we controlled for other alternative explanations such as low inflation or "easy" credit.

JEL-codes: N1 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-his and nep-mon
Note: DAE ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

Published as Michael D. Bordo & John Landon-Lane, 2013. "Does expansionary monetary policy cause asset price booms? some historical and empirical evidence," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(2), pages 04-52, August.

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Chapter: Does Expansionary Monetary Policy Cause Asset Price Booms? Some Historical and Empirical Evidence (2014)
Journal Article: Does expansionary monetary policy cause asset price booms? some historical and empirical evidence (2013)
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