American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence
American Economic Journal: Macroeconomics
vol. 7,
no. 1, January 2015
(pp. 233–57)
Abstract
We estimate the response of stock prices to monetary policy shocks using a time-varying coefficients VAR. Our evidence points to protracted episodes in which stock prices end up increasing persistently in response to an exogenous tightening of monetary policy. That response is at odds with the "conventional" view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence can be accounted for by an endogenous response of the equity premium to the monetary policy shock. (JEL E43, E44, E52, G12, G14)Citation
Galí, Jordi, and Luca Gambetti. 2015. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence." American Economic Journal: Macroeconomics, 7 (1): 233–57. DOI: 10.1257/mac.20140003Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G14 Information and Market Efficiency; Event Studies; Insider Trading
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