Swiss Journal of Economics and Statistics

, Volume 149, Issue 3, pp 291–312 | Cite as

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

Open Access


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.


E52 E58 E44 


monetary policy asset price bust zero lower bound cleaning-up pre-emptive tightening 


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Copyright information

© Swiss Society of Economics and Statistics 2013

Authors and Affiliations

  1. 1.Chair of MacroeconomicsCottbus University of TechnologyCottbusGermany
  2. 2.GATE Lyon/St. Etienne (CNRS UMR 5824)Ecully cedexFrance
  3. 3.University of HagenHagenGermany

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