The effects of monetary policy on stock market bubbles at zero lower bound: Revisiting the evidence

We revisit the results in Gali and Gambetta (2015) by reestimating their time-varying Bayesian VAR model including the shadow rate of Wu and Xia (2016). We found some significant differences when looking at the results during and in the aftermath of the crisis: with the shadow rate, the impact of mo...

Full description

Saved in:
Bibliographic Details
Published in:Economics letters 2018-08, Vol.169, p.55-58
Main Authors: Caraiani, Petre, Călin, Adrian Cantemir
Format: Article
Language:English
Subjects:
Aftermath
Bayesian analysis
Bubbles
Impact analysis
Monetary policy
Prices
Pricing policies
Securities markets
Stock exchanges
Studies
VAR
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We revisit the results in Gali and Gambetta (2015) by reestimating their time-varying Bayesian VAR model including the shadow rate of Wu and Xia (2016). We found some significant differences when looking at the results during and in the aftermath of the crisis: with the shadow rate, the impact of monetary policy shocks on asset prices becomes negative. There is also a much lower positive impact of monetary policy shocks on bubbles when using the shadow rate. The impact is lower by almost three percentage points. •We revisit the results in Gali and Gambetta (2015) using the shadow rate for an alternative estimation.•In the alternative estimation, the response of asset to monetary policy shocks becomes negative.•Bubbles respond positively, but the response is significantly lower as compared to the baseline estimation using the federal funds rate.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2018.05.014