The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence
Year: 2013
Type: article
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
Authors: Jordi Galı́, Luca Gambetti
Institutions: Universitat Pompeu Fabra, Barcelona School of Economics
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3125941271