By estimating a Markov-switching model, we provide new evidence on the nonlinear e¤ects of monetary policy shocks on asset prices and on their bubble component. We show that regime- dependence is mainly driven by the states a¤ecting the interest rate equation. We also show that, following a positive interest rate shock, an OLG model of asset price bubbles with credit frictions and sticky prices may predict an increase in the real rate, a recession/de‡ation and an increase in the bubble value. This result, which is new to the theoretical literature, matches both the previously existing and our empirical evidence.

Leaning against the bubble. Can theoretical models match the empirical evidence?

Enrico Marchetti;Giuseppe Ciccarone;
2020

Abstract

By estimating a Markov-switching model, we provide new evidence on the nonlinear e¤ects of monetary policy shocks on asset prices and on their bubble component. We show that regime- dependence is mainly driven by the states a¤ecting the interest rate equation. We also show that, following a positive interest rate shock, an OLG model of asset price bubbles with credit frictions and sticky prices may predict an increase in the real rate, a recession/de‡ation and an increase in the bubble value. This result, which is new to the theoretical literature, matches both the previously existing and our empirical evidence.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11367/90391
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