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 document large, longer-term, joint regime shifts in asset valuations and the real federal funds rate-r* spread. To interpret these findings, we estimate a novel macro-finance model of monetary transmission and find that the documented regimes coincide with shifts in the parameters of a policy rule, with long-term consequences for the real interest rate. Estimates imply that two-thirds of the decline in the real interest rate since the early 1980s is attributable to regime changes in monetary policy. The model explains how infrequent changes in the monetary policy stance can generate persistent changes in asset valuations and the equity premium.

JEL-codes: E02 E4 E52 G12 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published as FRANCESCO BIANCHI & MARTIN LETTAU & SYDNEY C. LUDVIGSON, 2022. "Monetary Policy and Asset Valuation," The Journal of Finance, vol 77(2), pages 967-1017.

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Related works:
Journal Article: Monetary Policy and Asset Valuation (2022)
Working Paper: Monetary Policy and Asset Valuation (2018)
Working Paper: Monetary Policy and Asset Valuation (2017)
Working Paper: Monetary Policy and Asset Valuation (2017)
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