Document Type
Article
Publication Date
10-2020
Publication Title
Economic Inquiry
Volume
58
Issue
4
Pages
1958-1976
Publisher Name
Wiley
Abstract
Since the Global Financial Crisis of 2007–2009, economists are reconsidering the appropriate role of monetary policy towards equity bubbles. This paper contributes to these deliberations by estimating the response of the stock market to monetary policy tightening by using a Bayesian time‐varying VAR model. By introducing the cyclically adjusted price/earnings ratio, we propose a method that estimates its fundamental and bubble components. We find that asset prices will initially fall and eventually rise again but without the risk of feeding the bubble. Counterfactual policy experiments provide additional evidence that monetary policy can lean against equity and housing prices. (JEL E50, E52, E58)
Recommended Citation
Evgenidis, Anastasios and Malliaris, A. (Tassos) G.. To Lean or Not to Lean Against an Asset Price Bubble? Empirical Evidence. Economic Inquiry, 58, 4: 1958-1976, 2020. Retrieved from Loyola eCommons, School of Business: Faculty Publications and Other Works, http://dx.doi.org/10.1111/ecin.12915
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright Statement
© The Authors, 2020.
Comments
Author Posting © The Authors, 2020. This article is posted here by permission of The Authors for personal use, not for redistribution. The article was published in Economic Inquiry, Volume 58, Issue 4, October 2020. https://doi.org/10.1111/ecin.12915