Stock Price Bubbles: Identification and the Effects of Monetary Policy

• Název práce v češtině: Bubliny na akciových trzích: identifikace a efekty měnové politiky
• Název v anglickém jazyce: Stock Price Bubbles: Identification and the Effects of Monetary Policy
• Klíčová slova: akciové trhy, analýza funkcí odezvy, bubliny, Grangerova kauzalita, Kalmanův filtr, monetarní politika, S&P 500, state-space modely, VAR modely
• Klíčová slova anglicky: bubbles, Granger causality, impulse response analysis, Kalman filter, monetary policy, S&P 500, state-space models, stock markets, VAR models
• Akademický rok vypsání: 2012/2013
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: PhDr. Jakub Matějů, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 14.06.2013
• Datum zadání: 14.06.2013
• Datum a čas obhajoby: 25.06.2014 00:00
• Místo konání obhajoby: ies
• Datum odevzdání elektronické podoby: 16.05.2014
• Datum proběhlé obhajoby: 25.06.2014
• Oponenti: Mgr. Pavel Ryska

Předběžná náplň práce

Tato práce se zabývá bublinami na americkém akciovém trhu a jejich souvislostí s měnovou politikou FEDu. Reálná hodnota indexu S&P 500 je rozdělena pomocí Kalmanova filtru na "fundamentální" a spekulativní část (bublinu). Fundamentální část hodnoty indexu závisí na očekáváných budoucích dividendách a požadované míře návratnosti, zatímco bublina je odhadnuta jako nepozorovaný vektor ve state-space modelu. Inovací této práce je, že jde o krok dále a studuje efekty monetární politiky na obě odhadnuté části indexu. Vektorový autoregresivní model s blokovými restrikcemi je použit k této analýze.

Předběžná náplň práce v anglickém jazyce

Since 1980s, there has been a heated debate whether and into which extent are the asset prices governed by their fundamental value and which part of the prices can be attributed to speculative bubbles. Steep rises and sudden falls in both stock and housing prices that we could witness in past decades suggest that other components than just the fundamental value may be contained in asset prices. The golden 1920s followed by the stock exchange crash in 1929 resulting in the Great Depression, the so called IT-bubble of late 1990s, or the housing and stock prices boom resulting in the subprime crisis that hit in 2008 are the most famous examples of periods when bubbles could play a substantial role.

The purpose of most central banks including the US Federal Reserve System is price stability. This thesis aims to investigate whether Federal Reserve’s monetary policy is effective in its pursuit of stable prices in terms of being able to influence the non-fundamental part of asset prices that I refer to as a bubble. Specifically, I will analyze the transmission from US short term interest rates to the extracted “bubble part” of S&P 500 Index.

The crucial part of the thesis will consist of determining the non-fundamental (or bubble) part of S&P 500 Index. There have been a number of theoretical models developed to explain how asset prices including a bubble can evolve and behave. The choice of the econometric method suitable for estimating the bubbles depends primarily on the underlying theoretical model which is believed to generate the prices. For this purpose, I will employ the same procedure as in Wu (1997), who incorporates a speculative rational bubble process into the standard linear rational expectations model of stock price determination. Following Wu (1997), I will jointly estimate the parametric bubble process, the stock-price equation, and the dividend process using Kalman filtering technique.

Having extracted this time series that one can believe contains the bubble part of S&P 500 Index, I will use the VAR model proposed by Sims (1980) in order to analyze the transmission from monetary policy interest rates to the estimated bubbles. In order to be able to take an aggregate picture of the transmission mechanism, other US market variables will be included in the VAR estimation. The dataset will also include output, inflation, and exchange rate. The dataset will be obtained from S&P database, Thomson Datastream, and from Shiller (2000).

There is a wide variety of literature on modeling and estimating asset price bubbles and also on monetary policy and its effect on asset prices. However, to my best knowledge, there has not been a study attempting to extract the non-fundamental part from stock prices and investigating how it is affected by monetary policy. Therefore, I believe that my thesis will be useful for the current research.