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
Date Written: October 9, 2019
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: Suggested Citation