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Monetary Policy and Asset Price Bubbles

Author

Listed:
  • Christophe Blot

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Paul Hubert
  • Fabien Labondance
Abstract
This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the "leaning against the wind" policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.

Suggested Citation

  • Christophe Blot & Paul Hubert & Fabien Labondance, 2018. "Monetary Policy and Asset Price Bubbles," Working Papers hal-04141787, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141787
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141787
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    4. Anastasios Evgenidis & Anastasios G. Malliaris, 2020. "To Lean Or Not To Lean Against An Asset Price Bubble? Empirical Evidence," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1958-1976, October.
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    More about this item

    Keywords

    Booms and busts; Mispricing; Price deviations; Interest rate policy; Unconventional monetary policy; Quantitative Easing; Federal Reserve;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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