Monetary Policy and Asset Price Bubbles

Christophe Blot (), Paul Hubert and Fabien Labondance

No 2018-5, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the “leaning against the wind” policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.

Keywords: Booms and busts; Mispricing; Price deviations; Interest rate policy; Unconventional monetary policy; Quantitative Easing; Federal Reserve (search for similar items in EconPapers)
JEL-codes: E44 E52 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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https://economix.fr/pdf/dt/2018/WP_EcoX_2018-5.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy and Asset Price Bubbles (2018)
Working Paper: Monetray policy and asset price bubbles (2018)
Working Paper: Monetray policy and asset price bubbles (2018)
Working Paper: Monetary Policy and Asset Price Bubbles (2018)
Working Paper: Monetray policy and asset price bubbles (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2018-5

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