Monetary Policy Tightening and Financial Market Reactions: A Comparative Analysis of Soft and Hard Landings

Gimede Gigante (), Fernando Piccolantonio and Francesca Scarlini
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Gimede Gigante: Department of Finance, Bocconi University, 20136 Milano, Italy
Fernando Piccolantonio: Department of Finance, Bocconi University, 20136 Milano, Italy
Francesca Scarlini: Department of Finance, Bocconi University, 20136 Milano, Italy

IJFS, 2025, vol. 13, issue 3, 1-24

Abstract: This paper investigates the macro-financial consequences of recent monetary policy tightening cycles, focusing on the distinction between soft and hard landings. Using an OLS regression framework applied to U.S. and Euro Area data from 1994 to 2023, we analyze the response of equity and bond markets, inflation, and GDP growth to central bank interest rate hikes. The findings suggest that, in most past tightening episodes, central banks succeeded in engineering soft landings without severe disruptions to market conditions or economic growth. However, the current post-pandemic context may lead to a two-stage adjustment, as inflation persistence and geopolitical shocks alter standard transmission dynamics. The study contributes to the ongoing policy debate on the timing and intensity of rate hikes, offering historical insights and empirical evidence from capital market signals.

Keywords: monetary policy; inflation; soft-landing; financial Markets; macro-financial transmission (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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