Leaning against the bubble. Can theoretical models match the empirical evidence?
Francesco Giuli (),
Enrico Marchetti and
Massimiliano Tancioni ()
MPRA Paper from University Library of Munich, Germany
By estimating a Markov-switching model, we provide new evidence on the nonlinear effects of monetary policy shocks on asset prices and on their bubble component. We show that regime-dependence is mainly driven by the states affecting the interest rate equation. We also show that, following a positive interest rate shock, an OLG model of asset price bubbles with credit frictions and sticky prices may predict an increase in the real rate, a recession/deflation and an increase in the bubble value. This result, which is new to the theoretical literature, matches both the previously existing and our empirical evidence.
Keywords: Asset price bubbles; monetary policy; overlapping generations models. (search for similar items in EconPapers)
JEL-codes: E13 E32 E44 E52 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-ore
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