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Quantitative easing and exuberance in stock markets: Evidence from the euro area

Thomas Hudepohl (), Ryan van Lamoen and Nander de Vette

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: In response to a prolonged period of low inflation, the European Central Bank (ECB) introduced Quantitative Easing (QE) in an attempt to steer inflation to its target of below, but close to, 2% in the medium term. This paper examines whether QE contributes to exuberance in euro area stock markets by using recent advances in bubble detection techniques (the GSADF-test). We do so by linking price developments in 10 euro area stock markets to a series of country specific macro fundamentals and QE. The results indicate that periods of QE coincide with exuberant investor behaviour, even after controlling for improving macro fundamentals.

Keywords: exuberance; asset price bubbles; unconventional monetary policy; quantitative easing (search for similar items in EconPapers)
JEL-codes: G12 G15 E52 E58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mac, nep-mon and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:660

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