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The asymmetric effects of monetary policy on stock price bubbles

Author

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  • Christophe Blot

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

  • Paul Hubert

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

  • Fabien Labondance

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

Abstract

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.

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  • Christophe Blot & Paul Hubert & Fabien Labondance, 2020. "The asymmetric effects of monetary policy on stock price bubbles," SciencePo Working papers Main hal-03403075, HAL.
    • Handle: RePEc:hal:spmain:hal-03403075
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03403075
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    More about this item

    Keywords

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

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