NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Monetary Policy and Stock Market Booms

Lawrence Christiano, Cosmin L. Ilut, Roberto Motto, Massimo Rostagno

NBER Working Paper No. 16402
Issued in September 2010
NBER Program(s):Economic Fluctuations and Growth

Historical data and model simulations support the following conclusion. Inflation is low during stock market booms, so that an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an independent role for credit growth (beyond its role in constructing the inflation forecast) would reduce the volatility of output and asset prices.

download in pdf format
   (522 K)

email paper

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16402

Published: Lawrence Christiano & Cosmin Ilut & Roberto Motto & Massimo Rostagno, 2010. "Monetary policy and stock market booms," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 85-145. citation courtesy of

Users who downloaded this paper also downloaded* these:
Baker and Wurgler w13189 Investor Sentiment in the Stock Market
Grossman and Shiller w0564 The Determinants of the Variability of Stock Market Prices
Taylor w14631 The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong
Schularick and Taylor w15512 Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
Bekaert, Hoerova, and Lo Duca w16397 Risk, Uncertainty and Monetary Policy
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us