Herd behaviour in asset market booms and crashes: the role of monetary policy

Stefano Micossi, Alexandra D’Onofrio and Fabrizia Peirce.

Robert Shiller’s influential book “Irrational Exuberance” (Shiller 2015) dealt powerful blows to the hypothesis of efficient capital markets by describing in remarkable detail the deeprooted psychological and ‘irrational’ mechanisms driving investors’ decisions, on occasion developing into herd behaviour – ‘manias’ – and generating ‘bubbles’ in housing, bond and stock markets. One important conclusion of his work is that bubbles and manias are random exogenous phenomena that cannot be foreseen or, for that matter, explained by standard macro-economic analysis and, more specifically, do not depend on macroeconomic policies. This view has been subscribed to by many influential scholars of financial crises, such as Blinder (2013) and Bernanke (2015).

Πηγή: CEPR

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