Does monetary policy generate asset price bubbles ?
Paul Hubert () and
Fabien Labondance ()
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Christophe Blot: Observatoire français des conjonctures économiques
Sciences Po publications from Sciences Po
This paper empirically assesses the effect of monetary policy on asset price bubbles and aims to disentangle the competing predictions of theoretical bubble models. First, we take advantage of the model averaging feature of Principal Component Analysis to estimate bubble indicators, for the stock, bond and housing markets in the United States and Euro area, based on the structural, econometric and statistical approaches proposed in the literature to measure bubbles. Second, we assess the linear and non-linear effect of monetary shocks on these bubble components using local projections. The main result of this paper is that monetary policy does not affect asset price bubble components, except for the US stock market for which we find evidence in favor of the prediction of rational bubble models.
Keywords: Asset price bubbles; Monetary polikcy; Quantitative easing; Federal Reserve; ECB (search for similar items in EconPapers)
JEL-codes: E44 G12 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Working Paper: Does Monetary Policy generate Asset Price Bubbles? (2017)
Working Paper: Does monetary policy generate asset price bubbles ? (2017)
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