Monetray policy and asset price bubbles

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

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

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.

Mots clés: Booms and busts; Mispricing; Price deviations; Interest rate policy; Unconventional monetary policy

Domaines: Economies et finances

Christophe Blot, Paul Hubert, Fabien Labondance. Monetray policy and asset price bubbles. 2018. ⟨hal-03471562⟩