The asymmetric effects of monetary policy on stock price bubbles

Christophe Blot (1) , Paul Hubert (1) , Fabien Labondance (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

Is the effect of US monetary policy on stock price bubbles asymmetric? We use a range of measures of excessive stock price variations that are unrelated to business cycle fluctuations. We find that the effects of monetary policy are asymmetric so responses to restrictive and expansionary shocks must be differentiated. The effects of restrictive monetary policy are more powerful than the effects of expansionary policies. We also find evidence that the asymmetric effect of monetary policy is state-contingent and depends on monetary, credit and business cycles as well as stock price boom-bust dynamics.

Keywords: Non-linearity; Equity; Booms and busts; Federal reserve

Domains: Economics and Finance

Christophe Blot, Paul Hubert, Fabien Labondance. The asymmetric effects of monetary policy on stock price bubbles. 2020. ⟨hal-03403075⟩