The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence

Jordi Galí and Luca Gambetti

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 1, 233-57

Abstract: We estimate the response of stock prices to monetary policy shocks using a time-varying coefficients VAR. Our evidence points to protracted episodes in which stock prices end up increasing persistently in response to an exogenous tightening of monetary policy. That response is at odds with the "conventional" view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence can be accounted for by an endogenous response of the equity premium to the monetary policy shock. (JEL E43, E44, E52, G12, G14)

JEL-codes: E43 E44 E52 G12 G14 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20140003
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Citations: View citations in EconPapers (141)

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Related works:
Working Paper: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2015)
Working Paper: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2014)
Working Paper: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2014)
Chapter: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2013)
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