Resource title

Price dividend models, expectations formation, and monetary policy

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Resource description

This paper applies the Campbell-Shiller (1988) methodology to estimate a price dividend model with volatility and inflation risk, extending existing models in this field. The model fits the data well over the period 1979-2002 for the Euro Area, but less so for the U.S. The latter is interpreted as reflecting fads and is borne out by a decomposition of the price dividend ratio into a fundamental and bubble part. Finally, it is shown that deviations from fundamentals enter significantly in the Fed?s interest rate reaction function but at the cost of destabilising monetary policy. Alternatively, in case that Fed policy remained stable, there was not much of attention to asset bubbles. For the Euro Area, historically, the reaction function does not appear to react much to asset prices.

Resource author

Nico Valckx

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19315

Resource license

Adapt according to the presented license agreement and reference the original author.