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Does Monetary Policy React to Asset Prices? Some International Evidence

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  • Francesco Furlanetto

    (Norges Bank)

Abstract

Previous estimates of the monetary policy response to stock market fluctuations in the United States are found to be sizable and significant once the simultaneous interdependence between stock prices and interest rates is properly taken into account. We show that this result is not confirmed when we apply the analysis to other countries and when we consider an extended sample period including the past decade for the United States. We do not find any response in the European Union and in six inflation-targeting countries, with the exception of Australia. Moreover, we find that the response in the United States declines over time and becomes not statistically significant during the housing bubble period (2003–07).

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 7 (2011)
Issue (Month): 3 (September)
Pages: 91-111

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Handle: RePEc:ijc:ijcjou:y:2011:q:3:a:4

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Citations

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Cited by:
  1. Jordi Galí & Luca Gambetti, 2013. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence," Working Papers 724, Barcelona Graduate School of Economics.
  2. Kajuth, Florian, 2012. "Identifying the Phillips curve through shifts in volatility," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 975-991.
  3. Demir, Ishak, 2012. "ECB Policy Response to the Euro/US Dollar Exchange Rate," MPRA Paper 36744, University Library of Munich, Germany.
  4. Francesco FURLANETTO, 2008. "Does Monetary Policy React to Asset Prices? Some International Evidence," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 08.02, Université de Lausanne, Faculté des HEC, DEEP.
  5. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Lucas Kamau Njoroge & Sheila Kaminchia, 2012. "Feasibility of inflation targeting in an emerging market: evidence from Kenya," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(2), pages 146-159, June.
  6. Airaudo, Marco & Nisticò, Salvatore & Zanna, Luis-Felipe, 2012. "Learning, Monetary Policy and Asset Prices," School of Economics Working Paper Series 2012-12, LeBow College of Business, Drexel University.
  7. Castelnuovo, Efrem & Nisticò, Salvatore, 2010. "Stock market conditions and monetary policy in a DSGE model for the U.S," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1700-1731, September.

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