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The Fed's Reaction to Asset Prices

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Author Info

  • Zeno Rotondi

    ()
    (Capitalia, Roma e Università di Ferrara)

  • Giacomo Vaciago

    ()
    (Università Cattolica del Sacro Cuore, Milano)

Abstract

Should central banks react to stock market prices? This problem has become fashionable again after the bubble of the 1990s and the following recession: if the Fed had reacted earlier to con tain the sharp growth in stock prices, might macroeconomic stabilization have been achieved? We present a new set of estimates showing that the Fed did react to stock market prices in the period 1988-2003. In particular, we find a significant lagged response for both real-time data and ex post revised data, as we would expect from a stabilizing leaning-against-the-wind approach.

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Bibliographic Info

Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 95 (2005)
Issue (Month): 2 (March-April)
Pages: 221-244

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Handle: RePEc:rpo:ripoec:v:95:y:2005:i:2:p:221-244

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Cited by:
  1. Castro, Vítor, 2008. "Are Central Banks following a linear or nonlinear (augmented) Taylor rule?," The Warwick Economics Research Paper Series (TWERPS) 872, University of Warwick, Department of Economics.
  2. Vítor, Castro, 2011. "Can central banks' monetary policy be described by a linear (augmented) Taylor rule or by a nonlinear rule?," Journal of Financial Stability, Elsevier, vol. 7(4), pages 228-246, December.
  3. Driffill, John & Rotondi, Zeno & Savona, Paolo & Zazzara, Cristiano, 2006. "Monetary policy and financial stability: What role for the futures market?," Journal of Financial Stability, Elsevier, vol. 2(1), pages 95-112, April.

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