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Does monetary policy generate asset price bubbles ?

Abstract : 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 dynamic effects of monetary shocks on these bubble components using local projections. The main result of this paper is that expansionary monetary policy does not inflate asset price bubble components, except for the US stock market. Overall, evidence tends to favor the prediction of rational bubble models
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Preprints, Working Papers, ...
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Submitted on : Sunday, October 24, 2021 - 6:00:35 AM
Last modification on : Tuesday, January 25, 2022 - 3:18:03 PM




Christophe Blot, Fabien Labondance, Paul Hubert. Does monetary policy generate asset price bubbles ?. 2017. ⟨hal-03399707⟩



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