September 2011 issue contents
Does Monetary Policy React to Asset Prices? Some International Evidence

by Francesco Furlanetto
Norges Bank


Previous estimates of the monetary policy response to stock market fluctuations in the United States are found to be sizable and significant once the simultaneous interdependence between stock prices and interest rates is properly taken into account. We show that this result is not confirmed when we apply the analysis to other countries and when we consider an extended sample period including the past decade for the United States. We do not find any response in the European Union and in six inflation-targeting countries, with the exception of Australia. Moreover, we find that the response in the United States declines over time and becomes not statistically significant during the housing bubble period (2003-07).

JEL Codes: E44, G10.

Full article (PDF, 21 pages 187 kb)