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La BCE réagit-elle au prix des actifs financiers ?

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  • Dominique Pepin

    ()
    (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers)

Abstract

We examine empirically whether financial asset prices may be admitted into the ECB interest rate rule. A correctly specified monetary policy rule implying that the ECB reacts to stock prices movements must include some measure of the gap between actual stock prices and fundamental values. We develop an original methodology to measure such a deviation, and we employed it as argument in an augmented interest rate rule. The empirical evidence suggests the following description of the European central banker: he significantly reacts to financial asset prices, by raising (lowering) the ECB main interest rate when stock prices are over(under)-evaluated; he is partisan of a wait-and-see policy, reacting only when the price gap is quite important; and he seems rather little conservative, believing that asset prices are driven mainly by nonfundamental factors.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00963626.

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Date of creation: 2010
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Handle: RePEc:hal:wpaper:hal-00963626

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Related research

Keywords: stock prices ; interest rate rule ; ECB;

References

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  1. Francesco Furlanetto, 2008. "Does monetary policy react to asset prices? Some international evidence," Working Paper 2008/07, Norges Bank.
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  8. Stephen G Cecchetti, 2003. "What the FOMC Says and Does When the Stock Market Booms," RBA Annual Conference Volume, in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy Reserve Bank of Australia.
  9. Rudebusch, Glenn D, 2005. "Assessing the Lucas Critique in Monetary Policy Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 245-72, April.
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  16. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  17. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 0364, European Central Bank.
  18. Robert J. Shiller, 1980. "The Use of Volatility Measures in Assessing Market Efficiency," NBER Working Papers 0565, National Bureau of Economic Research, Inc.
  19. Marcus Miller & Paul Weller & Lei Zhang, 2002. "Moral Hazard and the US Stock Market: Analysing the "Greenspan Put"," Economic Journal, Royal Economic Society, vol. 112(478), pages C171-C186, March.
  20. Siklos, Pierre L. & Werner, Thomas & Bohl, Martin T., 2004. "Asset Prices in Taylor Rules: Specification, Estimation, and Policy Implications for the ECB," Discussion Paper Series 1: Economic Studies 2004,22, Deutsche Bundesbank, Research Centre.
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  24. Arturo Estrella & Jeffrey C. Fuhrer, 2003. "Monetary Policy Shifts and the Stability of Monetary Policy Models," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 94-104, February.
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Cited by:
  1. Claudiu Tiberiu ALBULESCU, 2011. "Macro-Financial Risks and Central Banks: What Changes Has the Crisis Triggered?," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 4(3(15)), pages 135-142.

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