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The asymmetric effects of monetary policy on stock price bubbles

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  • Blot, Christophe
  • Hubert, Paul
  • Labondance, Fabien

Abstract

Is the effect of US monetary policy on stock price bubbles asymmetric? To explore this question, we compute a range of measures of excessive stock price movements that are unrelated to fundamentals. We find that the effects of monetary policy are asymmetric, so that responses to tightening and easing shocks must be distinguished. The effects of monetary policy tightening are stronger than the effects of monetary policy easing. We also find evidence that the asymmetric effect of monetary policy is state-contingent and depends on monetary, financial and business cycles.

Suggested Citation

  • Blot, Christophe & Hubert, Paul & Labondance, Fabien, 2024. "The asymmetric effects of monetary policy on stock price bubbles," European Economic Review, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:eecrev:v:168:y:2024:i:c:s0014292124001533
    DOI: 10.1016/j.euroecorev.2024.104824
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    135. repec:hal:spmain:info:hdl:2441/114p6m6s0395gqm0es4g7kgv3u is not listed on IDEAS
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    Cited by:

    1. Christophe Blot & Jérôme Creel & Emmanuelle Faure & Paul Hubert, 2020. "Setting New Priorities for the ECB's Mandate," SciencePo Working papers Main hal-03403024, HAL.
    2. Jonathan Libgober & Beatrice Michaeli & Elyashiv Wiedman, 2023. "With a Grain of Salt: Uncertain Veracity of External News and Firm Disclosures," Papers 2304.09262, arXiv.org, revised Aug 2023.
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    4. repec:spo:wpmain:info:hdl:2441/1f03f28hhu85b9bn1bp8i7g8ie is not listed on IDEAS
    5. Antonia Lopez Villavicencio & Marc Pourroy, 2023. "Information Shocks in the U.S. and Asset Mispricing in Emerging Economies," EconomiX Working Papers 2023-19, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    Financial stability; State-dependence; Asset prices; Booms and busts; Leaning against the wind;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

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