The Impact of Monetary Policy and Central Bank Information Shocks on U.S. Stock Market Bubble Dynamics: The Role of Deregulation

Khder Alakkari, Bushra Ali (), Petre Caraiani () and Rangan Gupta ()
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Khder Alakkari: Department of Statistics and Programming, Faculty of Dentistry, Al Andalus University for Medical Sciences, Tartus, Syria; Faculty of Economics, Latakia University, P.O. Box 2230, Syria; Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria
Bushra Ali: Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria
Petre Caraiani: Institute for Economic Forecasting, Romanian Academy, Romania; Bucharest University of Economic Studies, Romania
Rangan Gupta: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202634, Working Papers from University of Pretoria, Department of Economics

Abstract: We examine whether the responses of U.S. stock-market bubble indicators to two distinct components of Federal Reserve announcements vary with the lagged deregulation state: conventional monetary-policy (MP) shocks and central-bank-information (CBI) shocks. The monthly analysis covers February 1990--May 2025 and uses six multi-scale LPPLS confidence indicators that distinguish positive and negative episodes at short, medium, and long horizons. A news-based deregulation index enters with a one-month lag. Linear, interaction, varying-coefficient, and smooth-transition local projections distinguish average responses from variation across regulatory states. In a 6-lag linear validation, CBI shocks show more consistent cumulative responses than conventional MP shocks, both with and without lagged deregulation as a control. Observed-state P90--P10 contrasts from the interaction local projections indicate that conventional MP responses vary with deregulation, most clearly for short- and medium-horizon positive-bubble indicators. Direct CBI responses are directionally consistent, but the corresponding P90–P10 contrasts do not support systematic CBI amplification as deregulation rises. For the linear benchmark, simultaneous confidence bands remove isolated pointwise horizon findings. These findings describe how the responses of LPPLS confidence indicators to monetary announcement shocks vary with the deregulation state.

Keywords: deregulation; monetary policy shocks; central-bank information shocks; stock-market bubbles; local projections; state dependence; LPPLS (search for similar items in EconPapers)
JEL-codes: C22 C32 E44 E52 E58 G12 G14 G18 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2026-10
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