Objective
"The proposed research project seeks to further our understanding on two important questions for the design of monetary policy:
(a) What are the effects of monetary policy interventions on asset price bubbles?
(b) How should monetary policy be conducted in the presence of asset price bubbles?
The first part of the project will focus on the development of a theoretical framework that can be used to analyze rigorously the implications of alternative monetary policy rules in the presence of asset price bubbles, and to characterize the optimal monetary policy. In particular, I plan to use such a framework to assess the merits of a “leaning against the wind” strategy, which calls for a systematic rise in interest rates in response to the development of a bubble.
The second part of the project will seek to produce evidence, both empirical and experimental, regarding the effects of monetary policy on asset price bubbles. The empirical evidence will seek to identify and estimate the sign and response of asset price bubbles to interest rate changes, exploiting the potential differences in the joint behavior of interest rates and asset prices during “bubbly” episodes, in comparison to “normal” times. In addition, I plan to conduct some lab experiments in order to shed some light on the link between monetary policy and bubbles. Participants will trade two assets, a one-period riskless asset and a long-lived stock, in an environment consistent with the existence of asset price bubbles in equilibrium. Monetary policy interventions will take the form of changes in the short-term interest rate, engineered by the experimenter. The experiments will allow us to evaluate some of the predictions of the theoretical models regarding the impact of monetary policy on the dynamics of bubbles, as well as the effectiveness of “leaning against the wind” policies."
Programme(s)
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
Topic(s)
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Call for proposal
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
ERC-2013-ADG
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Funding Scheme
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
Host institution
08005 Barcelona
Spain
The total costs incurred by this organisation to participate in the project, including direct and indirect costs. This amount is a subset of the overall project budget.