This paper addresses three important questions: how should monetary policy respond to stock market booms, what causes stock market bubbles and can monetary policy pop them. These questions arose during the recent stock market bubble during 1995-2000 and its collapse during 2000-1. To answer...

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the evolution of Federal Reserve transparency in U.S. and second we test its effectiveness. We assess the empirical impact of monetary policy transparency on the...

Recently Chairman Greenspan (2003 and 2004) has discussed a risk management approach to the implementation of monetary policy. This paper explores the economic environment of the 1990s and the policy dilemmas the Fed faced given the stock boom from the mid to late 1990s to after the bust in...

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the various sources of uncertainty that play an essential role in the formulation and conduct of monetary policy and evaluate the degree of uncertainty faced by monetary...

Economists have long conjectured that movements in stock prices may involve speculative components. This bubble, as it is usually referred to, is defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues...

This paper argues that the global monetary system has exhibited significant instability since the collapse of the Bretton Woods regime in 1971. The recent challenge for economists and policy makers is the creation of a global monetary system that offers greater exchange rate stability without...

Numerous studies have estimated U.S. stock market returns measured by various indexes such as the Samp;P 500 Index over certain periods. The purpose of this paper is twofold: first we calculate, under certain scenarios, the final total accumulation of a representative individual who invests a...

This chapter introduces the reader to definitions and key properties of stochastic processes that are important in finance. The discussion starts from the description of Brownian motion that describes the idea of a continuous random walk and proceeds to Ito processes that incorporate both trend...

This paper contributes to a fuller understanding of macroeconomic outcomes to financial market disturbances and the central bank’s role in financial stability. Our two major contributions are conceptual and econometric. Conceptually, we introduce phases of the business cycle and...

A speculative bubble is usually defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues surrounding the topic of asset bubbles, the existence of bubbles is inherently an empirical issue that has not been...