Herd Behaviour in Asset Market Booms and Crashes: The Role of Monetary Policy

Stefano Micossi. Alessandra D'Onofrio and Fabrizia Peirce, Herd Behaviour in Asset Market Booms and Crashes: The Role of Monetary Policy, CEPR Policy Insight n. 97, October 2019

11 Pages Posted: 23 Oct 2019

See all articles by Stefano Micossi

Stefano Micossi

Associazione italiana delle società per azioni

Alexandra D'Onofrio

Luiss Guido Carli University - Arcelli Center for Monetary and Financial Studies (CASMEF)

Fabrizia Peirce

ASSONIME

Date Written: October 9, 2019

Abstract

One important conclusion of Robert Shiller's influential 2015 book, Irrational Exuberance, is that bubbles are random exogenous phenomena that cannot be foreseen and do not depend on macroeconomic policies. This CEPR Policy Insight throws light on the root causes of speculative fevers in asset markets and related financial booms and busts. It shows empirical evidence indicating that Shiller may have overlooked the role that lax monetary policy played in triggering financial bubbles in the 2000s by offering investors a perverse promise of ever-increasing asset prices.

Keywords: financial instability, bubbles and manias, investors' expectations, monetary policy

JEL Classification: G01

Suggested Citation

Micossi, Stefano and D'Onofrio, Alexandra and Peirce, Fabrizia, Herd Behaviour in Asset Market Booms and Crashes: The Role of Monetary Policy (October 9, 2019). Stefano Micossi. Alessandra D'Onofrio and Fabrizia Peirce, Herd Behaviour in Asset Market Booms and Crashes: The Role of Monetary Policy, CEPR Policy Insight n. 97, October 2019, Available at SSRN: https://ssrn.com/abstract=3469458 or http://dx.doi.org/10.2139/ssrn.3469458

Stefano Micossi (Contact Author)

Associazione italiana delle società per azioni ( email )

Piazza Venezia 11
ROMA, 00187
Italy
+39 06 69529214 (Phone)

Alexandra D'Onofrio

Luiss Guido Carli University - Arcelli Center for Monetary and Financial Studies (CASMEF) ( email )

Viale Romania 32
Rome, 00197
Italy

Fabrizia Peirce

ASSONIME

Piazza Venezia 11
ROMA, 00187
Italy

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