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Monetary policy and asset prices: When cleaning up hits the zero lower bound

Swiss Journal of Economics and Statistics volume 149, pages 291–312 (2013)Cite this article

Summary

Recently, convincing evidence has been presented that the recession in the wake of the recent financial crisis resulted primarily from an overly levered housing sector that was forced to deleverage and cut consumption spending when faced with collapsing housing prices. Following this interpretation it is argued that, as opposed to the consensus view on monetary policy in the vicinity of the ZLB, optimal monetary policy may involve an interest rate increase if the ZLB threatens to become a binding constraint in the aftermath of an asset price bust. This result delivers arguments to advocate a— in the previous literature less favored— pre-emptive tightening policy in an asset price boom.

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Authors and Affiliations

  1. Chair of Macroeconomics, Cottbus University of Technology, Erich-Weinert-Str. 1, 03046, Cottbus, Germany

    Wolfram Berger

  2. GATE Lyon/St. Etienne (CNRS UMR 5824), 93, chemin des Mouilles, B.P.167, 69131, Ecully cedex, France

    Wolfram Berger

  3. University of Hagen, Universitätsstr. 11 (TGZ), 58084, Hagen, Germany

    Friedrich Kissmer

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  1. Wolfram Berger
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Correspondence to Wolfram Berger.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Berger, W., Kissmer, F. Monetary policy and asset prices: When cleaning up hits the zero lower bound. Swiss J Economics Statistics 149, 291–312 (2013). https://doi.org/10.1007/BF03399393

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