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Monetary Policy and Asset Valuation

Francesco Bianchi ()

No 500, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: This paper presents evidence of infrequent shifts, or “breaks,” in the mean of the consumption-wealth variable cay that are strongly associated with fluctuations in the long-run expected value of the Federal Reserve's primary policy rate, with low policy rates associated with high asset valuations, and vice versa. By contrast, there is no evidence that infrequent shifts to high asset valuations and low policy rates are associated with higher expected economic growth or lower economic uncertainty; indeed the opposite is true. Additional evidence supports an equity market "reaching for yield" channel, wherein low interest rate regimes coincide with low risk premia.

New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2017
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https://economicdynamics.org/meetpapers/2017/paper_500.pdf (application/pdf)

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Working Paper: Monetary Policy and Asset Valuation (2017) Downloads
Working Paper: Monetary Policy and Asset Valuation (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:500

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