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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 effect of monetary shocks on these bubble components using local projections. The main result of this paper is that monetary policy does not affect asset price bubble components, except for the US stock market for which we find evidence in favor of the prediction of rational bubble models.
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Preprints, Working Papers, ...
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https://hal-sciencespo.archives-ouvertes.fr/hal-03471824
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Submitted on : Thursday, December 9, 2021 - 3:54:34 AM
Last modification on : Friday, March 25, 2022 - 3:58:38 AM

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Christophe Blot, Paul Hubert, Fabien Labondance. Does monetary policy generate asset price bubbles ?. 2017. ⟨hal-03471824⟩

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