Monetary Policy and Asset Price Bubbles
Paul Hubert () and
Fabien Labondance ()
No 2018-5, EconomiX Working Papers from University of Paris Nanterre, EconomiX
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 G12 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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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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