Asset bubbles and foreign interest rate shocks

On Interest Rate Policy and Asset Bubbles

In a provocative paper, Gali (2014), showed that a policymaker who raises interest rates because of concerns about a bubble will paradoxically make the bubble bigger. In this paper, we argue Gali’s framework abstracts from the possibility that a policymaker who raises rates might crowd out resources that would have otherwise been spent on the bubble. We show that when we modify Gali’s model to ...

Inflation shocks and interest rate rules

Recent empirical evidence by Fair (2002, 2005) and Giordani (2003) shows that a positive inflation shock with the nominal interest rate held constant has contractionary effects. These results cannot be reconciled with the standard ‘New Synthesis’ literature. This paper reconsiders the effects of inflation shocks in a simple New Keynesian framework extended to include wealth effects. It is shown...

Stock interest rate risk and inflation shocks

In this paper we proceed to estimate a measure of the flow-through capability of the firms listed in the Spanish Stock Exchange. The flow-through capability is defined as the ability of firms to transmit inflation shocks to the prices of the products and services sold by the company. According to a strand of literature, this flow-through capability can explain, to some extent, the so called “st...

Economic Shocks and Civil Conflict: Evidence from Foreign Interest Rate Movements

We exploit annual variation in influential foreign interest rates to identify externally-driven components of short-run income shocks in small open economies from 1971-2004 and explore the statistical nature of the income-civil conflict nexus. Our results show that movements in foreign interest rates have important effects on civil conflict risk through domestic economic channels. More importan...

Endogenous asset market segmentation : interest rate dynamics