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Monetary Policy and Asset Valuation

Francesco Bianchi (), Martin Lettau and Sydney Ludvigson ()

No 22572, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We find evidence of infrequent shifts, or “regimes,” in the mean of the asset valuation variable cay t that are strongly associated with low-frequency fluctuations in the real federal funds rate, with low policy rates associated with high asset valuations, and vice versa. There is no evidence that infrequent shifts to high asset valuations are associated with higher expected economic growth or lower economic uncertainty; indeed, the opposite is true. Additional evidence shows that regimes of low interest rates and high asset valuations are characterized by lower equity market risk premia and monetary policy that is less responsive to inflation.

JEL-codes: E02 E4 E52 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
Date: 2016-08
Note: AP EFG ME
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Working Paper: Monetary Policy and Asset Valuation (2017) Downloads
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