NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy

Frederic S. Mishkin, Eugene N. White

NBER Working Paper No. 8992*
Issued in June 2002
NBER Program(s):   DAE    EFG    ME

This paper examines fifteen historical episodes of stock market crashes and their aftermath in the United States over the last one hundred years. Our basic conclusion from studying these episodes is that financial instability is the key problem facing monetary policy makers and not stock market crashes, even if they reflect the possible bursting of a bubble. With a focus on financial stability rather than the stock market, the response of central banks to stock market fluctuations is more likely to be optimal and maintain support for the independence of the central bank.

*Published: Hunter, William B., George G. Kaufman and Michael Pormerleano (eds.) Asset Price Bubbles: The Implications for Monetary, Regulatory and International Policies. Cambridge MA: MIT Press, 2003.

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