Did the Fed and ECB react asymmetrically with respect to asset market developments?

Andreas Hoffmann

No 103, Working Papers from University of Leipzig, Faculty of Economics and Management Science

Abstract: This paper studies the monetary policy of the Federal Reserve (Fed) and the Bundesbank / European Central Bank (ECB) with respect to stock or/and foreign exchange markets from 1979 to 2009. I find that Fed policy changed over time, dependent on the chairman of the Fed. During the Greenspan era stock markets mattered for the Fed. In this period, the Fed lowered interest rates when stock prices fell, but did not raise interest rates in the boom. This asymmetry potentially put a downward pressure on interest rates. For the ECB, the exchange rate to the dollar played a role in monetary policy decisions until 2006. While I do not find evidence of asymmetric monetary policy with respect to the stock market, the ECB may be argued to indirectly have followed asymmetric US monetary policy via the exchange rate channel.

Keywords: monetary policy; Taylor rule; asset prices (search for similar items in EconPapers)
JEL-codes: E52 E61 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Did the Fed and ECB react asymmetrically with respect to asset market developments? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:leiwps:103

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