The effects of monetary policy on stock market bubbles: Some evidence

Jordi Galí, Luca Gambetti

Research output: Contribution to journalArticleResearchpeer-review

138 Citations (Scopus)


We estimate the response of stock prices to monetary policy shocks using a time-varying coefficients VAR. Our evidence points to protracted episodes in which stock prices end up increasing persistently in response to an exogenous tightening of monetary policy. That response is at odds with the "conventional" view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence can be accounted for by an endogenous response of the equity premium to the monetary policy shock.
Original languageEnglish
Pages (from-to)233-257
JournalAmerican Economic Journal: Macroeconomics
Issue number1
Publication statusPublished - 1 Jan 2015


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