IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/2433.html
   My bibliography  Save this paper

Bubble Mitigation Policies: Counterfactual Analysis and Treatment Effect Inference

Author

Listed:
  • Ye Chen

    (Capital University of Economics and Business)

  • Peter C.B. Phillips

    (Yale University, University of Auckland, Singapore Management University)

  • Shuping Shi

    (Macquarie University)

Abstract

To safeguard economic and financial stability policymakers regularly take actions designed to increase resilience to systemic risks and curb speculative market behavior. To assess the effectiveness of such mitigation policies, we introduce a counterfactual approach tailored to accommodate the mildly explosive dynamics that occur during speculative bubbles. We derive asymptotics of the estimated treatment effect under a common factor structure that allows for explosive, I(1), and stationary factors, thereby having applicability to a wide range of prevailing economic conditions. An inferential procedure is proposed for the policy treatment effect that has asymptotic validity and demonstrates satisfactory finite sample performance. An empirical analysis examines the monetary policy of interest rate hikes implemented by the Reserve Bank of New Zealand, beginning in October 2021.This policy exerted a statistically significant cooling effect on all regional housing markets in New Zealand. Our findings show that this policy led to 20%-33% reductions in house prices in five out of six regions seven months after the enactment of the interest rate hike.

Suggested Citation

  • Ye Chen & Peter C.B. Phillips & Shuping Shi, 2025. "Bubble Mitigation Policies: Counterfactual Analysis and Treatment Effect Inference," Cowles Foundation Discussion Papers 2433, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2433
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/2025-03/d2433.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:2433. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.