The Fed's Reaction to Asset Prices

Zeno Rotondi () and Giacomo Vaciago
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Zeno Rotondi: Capitalia, Roma e Università di Ferrara

Rivista di Politica Economica, 2005, vol. 95, issue 2, 221-244

Abstract: Should central banks react to stock market prices? This problem has become fashionable again after the bubble of the 1990s and the following recession: if the Fed had reacted earlier to con tain the sharp growth in stock prices, might macroeconomic stabilization have been achieved? We present a new set of estimates showing that the Fed did react to stock market prices in the period 1988-2003. In particular, we find a significant lagged response for both real-time data and ex post revised data, as we would expect from a stabilizing leaning-against-the-wind approach.

JEL-codes: D84 E44 E52 E58 G12 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (6)

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