Economics, Econometrics and Finance
4 years ago

Stock prices soar after monetary policy tightening, defying conventional wisdom.

The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence
Jordi Galı́, Luca Gambetti

Paper Summary

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The study looked at how changes in monetary policy affect stock market bubbles. They found that when monetary policy tightens, stock prices initially drop but then rise over time. This goes against what most people think happens when monetary policy changes. The researchers used a model to analyze these effects and concluded that the stock market's response to monetary policy shocks is not just a result of other factors.