The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence

Jordi Galí and Luca Gambetti

No 19981, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate the response of stock prices to exogenous monetary policy shocks using a vector-autoregressive model with time-varying parameters. Our evidence points to protracted episodes in which, after a short-run decline, stock prices increase persistently in response to an exogenous tightening of monetary policy. That response is clearly at odds with the "conventional" view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence be accounted for by an endogenous response of the equity premium to the monetary policy shocks.

JEL-codes: E52 G12 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Jordi Galí & Luca Gambetti, 2015. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 233-57, January.
Published as The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence , Jordi Galí, Luca Gambetti. in Lessons from the Financial Crisis for Monetary Policy , Gertler. 2015

Downloads: (external link)
http://www.nber.org/papers/w19981.pdf (application/pdf)

Related works:
Journal Article: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2015)
Working Paper: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2015)
Working Paper: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2014)
Chapter: The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19981

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19981

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().