Moral Hazard and the Us Stock Market: Analysing the 'Greenspan Put'

@article{Miller2001MoralHA,
  title={Moral Hazard and the Us Stock Market: Analysing the 'Greenspan Put'},
  author={Marcus Miller and Paul A. Weller and Lei Zhang},
  journal={Monetary Economics},
  year={2001}
}
When the risk premium in the US stock market fell substantially, Shiller (2000) attributed this to a bubble driven by psychological factors. An alternative explanation is that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve which leads investors into the erroneous belief that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show that this "insurance" — referred to as the… 

Capital Flows and the Us 'New Economy': Consumption Smoothing and Risk Exposure

In an analytically tractable model of the global economy, we calculate the Pareto improvement where a country experiencing a favourable supply side shock consumes more against expected future output

World Finance and the US "New Economy": Welfare Efficiency and Moral Hazard 1

Promises of a “New Economy” in the US attracted substantial equity inflows in the late 1990s. Since their peak, however, the US stock market fell substantially in 2001-2002. To assess welfare effects

World Finance and the Us 'New Economy': Risk Sharing and Risk Exposure

The promising prospect of a ‘New Economy’ in the US attracted substantial equity inflows in the late 1990s, helping to finance the country’s burgeoning current account deficit. After peaking in 2000,

Monetary Policy and Asset Prices: More Bad News for Benign Neglect

In this paper we explore the optimal policy reaction to boom-bust cycles in asset prices. Bordo and Jeanne (2002a, b) point to the risks of a reactive strategy that only mitigates the consequences of

The Economics of the Fed Put

Since the mid-1990s, negative stock returns comove with downgrades to the Fed’s growth expectations and predict policy accommodations. Textual analysis of FOMC documents reveals that policy makers

Financial Fragility, Bubbles and Monetary Policy

  • G. Illing
  • Economics
    SSRN Electronic Journal
  • 2001
The paper models the links between financial fragility, asset markets and monetary policy. It is shown that central banks concern about the cost of financial disruption generates an asymmetric

Monetary Policy and Stock Prices in a DSGE Framework

Is the Federal Reserve at all concerned with stock market performance, as the observation of its recent conduct might seem to suggest? Is there a theoretical scope for such a concern? This paper

'Irrational exuberance' and capital flows for the us new economy : A simple global model

In a stylized and analytically tractable model of the global economy, we first calculate the Pareto improvement when a country experiencing a favourable supply side shock consumes more against

JOSEPH SCHUMPETER LECTURE THE GREAT MODERATION, THE GREAT PANIC, AND THE GREAT CONTRACTION

This lecture examines the causes of the recent financial crisis and subsequent recession. On the macroeconomic side, the Great Moderation encouraged an overly optimistic assessment of risk. Combined
...

References

SHOWING 1-10 OF 28 REFERENCES

Moral Hazard and the US Stock Market: Has Mr. Greenspan Created a Bubble?

Acknowledgement: We would like to thank participants to seminars at the Bank of Finland and the Warwick Financial Option Research Centre for their comments and suggestions, particularly those from

The equity risk premium a solution

Asset Prices, Consumption, and the Business Cycle

This paper reviews the behavior of financial asset prices in relation to consumption. The paper lists some important stylized facts that characterize US data, and relates them to recent developments

Asset Bubbles, Domino Effects and 'Lifeboats' Elements of the East Asian Crisis

Credit market imperfections have been blamed for the depth and persistence of the Great Depression in the USA. Could similar mechanisms have played a role in ending the East Asian miracle? After a

The Crash of ʼ87: Was It Expected? The Evidence from Options Markets

Transactions prices of S&P 500 futures options over 1985-1987 are examined for evidence of expectations prior to October 1987 of an impending stock market crash. First, it is shown that

Asset Bubbles, Leverage and ‘Lifeboats’: Elements of the East Asian Crisis

Collapsing credit markets have been blamed for the depth and persistence of the Great Depression in the United States. Could similar mechanisms have played a role in ending the East Asian economic

By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior

We present a consumption‐based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long‐horizon predictability of excess

Asset prices and central bank policy

The Adjustment of Stock Prices to Information About Inflation

This paper analyzes the reaction of stock prices to the new information about inflation. Based on daily returns to the Standard and Poor's composite portfolio from 1953–78, it seems that the stock

Asset returns and inflation