Did the Fed and ECB react asymmetrically with respect to asset market developments?
AbstractThis paper studies the monetary policy of the Federal Reserve (Fed) and the Bundesbank / European Central Bank (ECB) with respect to stock or/and foreign exchange markets from 1979 to 2009. I find that Fed policy changed over time, dependent on the chairman of the Fed. During the Greenspan era stock markets mattered for the Fed. In this period, the Fed lowered interest rates when stock prices fell, but did not raise interest rates in the boom. This asymmetry potentially put a downward pressure on interest rates. For the ECB, the exchange rate to the dollar played a role in monetary policy decisions until 2006. While I do not find evidence of asymmetric monetary policy with respect to the stock market, the ECB may be argued to indirectly have followed asymmetric US monetary policy via the exchange rate channel. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 103.
Date of creation: 2012
Date of revision:
monetary policy; Taylor rule; asset prices;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-27 (All new papers)
- NEP-CBA-2012-02-27 (Central Banking)
- NEP-EEC-2012-02-27 (European Economics)
- NEP-MAC-2012-02-27 (Macroeconomics)
- NEP-MON-2012-02-27 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin T. Bohl & Pierre L. Siklos & David Sondermann, 2008. "European Stock Markets and the ECB's Monetary Policy Surprises," International Finance, Wiley Blackwell, vol. 11(2), pages 117-130, 08.
- Gunther Schnabl & Christian Danne, 2007.
"A Role Model for China? Exchange Rate Flexibility and Monetary Policy in Japan,"
CESifo Working Paper Series
2051, CESifo Group Munich.
- DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
- Botzen, W.J. Wouter & Marey, Philip S., 2010. "Did the ECB respond to the stock market before the crisis?," Journal of Policy Modeling, Elsevier, vol. 32(3), pages 303-322, May.
- Bill Dupor & Timothy Conley, 2004. "The Fed Response to Equity Prices and Inflation," American Economic Review, American Economic Association, vol. 94(2), pages 24-28, May.
- Andreas Hoffmann & Gunther Schnabl, 2007.
"Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View,"
CESifo Working Paper Series
2100, CESifo Group Munich.
- Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, 09.
- Schnabl, Gunther & Hoffmann, Andreas, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View," MPRA Paper 5201, University Library of Munich, Germany.
- Belke, Ansgar & Orth, Walter & Setzer, Ralph, 2008. "Liquidity and the dynamic pattern of price adjustment: a global view," Discussion Paper Series 1: Economic Studies 2008,25, Deutsche Bundesbank, Research Centre.
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Andreas Hoffmann & Gunther Schnabl, 2009.
"A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View,"
CESifo Working Paper Series
2855, CESifo Group Munich.
- Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, 03.
- Hoffmann, Andreas & Schnabl, Gunther, 2009. "A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View," MPRA Paper 18532, University Library of Munich, Germany.
- Greiber, Claus & Setzer, Ralph, 2007. "Money and housing: evidence for the euro area and the US," Discussion Paper Series 1: Economic Studies 2007,12, Deutsche Bundesbank, Research Centre.
- De Grauwe, Paul & Polan, Magdalena, 2005. "Is inflation always and everywhere a monetary phenomenon?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101180, Katholieke Universiteit Leuven.
- Elsamadisy, Elsayed Mousa & Alkhater, Khalid Rashid & Basher, Syed Abul, 2013. "Pre- versus Post-Crisis Central Banking in Qatar," MPRA Paper 45310, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.