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Should ASEAN-5 monetary policy-makers act pre-emptively against stock market bubbles?

Mala Raghavan () and Mardi Dungey ()

Applied Economics, 2015, vol. 47, issue 11, 1086-1105

Abstract: Stock market rises and asset price inflation in ASEAN economies have raised the question of whether monetary authorities in these economies should act pre-emptively against these rising trends to prevent impending financial crises. Using structural vector error correction models (SVECMs) which incorporate mixed data characteristics, we examine the effects and interactions between monetary policy and stock market shocks for Singapore, Malaysia, Thailand, Indonesia and the Philippines. The results suggest that monetary policy focused on the stock market detracts from price stability objectives, in particular because containing a stock market bubble may inadvertently depress output and inflation.

Date: 2015
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