The role of expectations in the formation of the price bubble in the stock market

Document Type : Scientific-research

Authors

1 PhD student of financial economics, Department of Theoretical Economics, Faculty of economics, Allame Tabataba’i University

2 Professor of Economics, Department of Theoretical Economics, Faculty of economics, Allame Tabataba’i University

3 Associate Professor of Economics, Department of Theoretical Economics, Faculty of economics, Allame Tabataba’i University

Abstract

Analyzing the formation of bubble prices in stock market is the most important macro subjects in recent years. Due to this importance, in this study we use a DSGE model (developed by Castelnuovo and Nisticò, 2010) in order to study bubbles in stock market price index. Because the price bubble is a non-fundamental factor, using the approach of separating fundamental from non- fundamental factors is a good way to evaluate the formation of a bubble in the stock market. Accordingly, in this study, the variables of changes in inflation, production and stock price are separated according to fundamental and non- fundamental factors and then the effect of each of the non- fundamental shocks on macro variables such as stock price and stock price bubble formation is investigated. By calibrating the structural parameters of the model, the results show that non- fundamental hidden factors in inflation, production and stock prices cause the formation of bubbles in the stock market. Also, among the above factors, non- fundamental inflation factors is the most important factor in the formation of the stock price bubble, and then fluctuations in the production sector and the stock price itself. This results include this practical proposal that stability in the stock market and avoiding the formation of bubbles in the stock price index mainly depends on controlling the inflation rate and creating stability at the general level of prices
.

Keywords

References

اسدی، احسان، زارع، هاشم، ابراهیمی، مهرزاد و پیرایی، خسرو (1397)، تکانه احساسی و حباب های قیمت سهام در چارچوب الگوی تعادل عمومی پویای تصادفی: مطالعه موردی ایران، مجله مطالعات اقتصادی ایران، دوره ۷، شماره ۲.
بشیری، سحر، پهلوانی، مصیب و بوستانی، رضا (1395)، نوسانات بازار سهام و سیاست پولی در ایران، مجله تحقیقات مدلسازی اقتصادی، شماره 23.
صارم، مهدی و مرزبان، حسین (1398)، تفکیک عوامل پایه‌ای از عوامل غیرپایه‌ای در یک الگوی تفاضلی تصادفی برای اقتصاد ایران، مجله تحقیقات اقتصادی، دوره ۵۴، شماره ۱،   95-75.
ایزدی، مریم، شاکری حسین آباد، عباس، عبداله میلانی، مهنوش، محمدی، تیمور، شکل‌گیری حباب قیمت در بازار سهام و اثر آن بر ادوار تجاری ایران، فصلنامه اقتصصاد مقداری،1400.
An, S., Schorfheide, F., 2007. Bayesian analysis of DSGE models. Econometric Reviews 26, 113–172.
Blanchard, O.J., 1985. Debt, deficits, and finite horizons. Journal of Political Economy, 93. The Journal of Political Economy, Vol. 93, No. 2. (Apr., 1985), pp. 223-247
Calvo, G.A., 1983. Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12 (3), 383–398.
Castelnuovo, E., & Nistico, S. (2010). Stock market conditions and monetary policy in a DSGE model for the U.S. Journal of Economic Dynamics and Control, 34, 1700-1731.
Erceg, C.J., Henderson, D.W., Levin, A.T., 2000. Optimal monetary policy with staggered wage and price contracts. Journal of Monetary Economics 46 (2), 281–313.
Galı´, J., 2003. New perspectives on monetary policy, inflation and the business cycle. In: Dewatripont, M., Hansen, L., Turnovsky, S. (Eds.), Advances in Economic Theory, vol. III. Cambridge University Press, pp. 151–197.
Nistico S., 2005. Monetary policy and stock-price dynamics in a DSGE framework. LLEE Working Paper no. 28.
Sangiorgi, F., Santoro, S., 2006. Nominal rigidities and asset pricing in new Keynesian monetary models. In: Di Giorgio, G., Neri, F. (Eds.), Monetary Policy and Institutions. Luiss University Press.
Argia M. Sbordone, Andrea Tambalotti, Krishna Rao, and Kieran Walsh (2010) "Policy Analysis Using DSGE Models: An Introduction FRBNY Economic Policy eview /October 2010, FRBNY Economic Policy Review / October 2010-43-23.
Jeffrey C. Fuhrer ∗ "Habit Formation in Consumption and Its Implications"
for Monetary Policy Models" American Economic Review, June 2000 vol. 90, no. 3, June 2000. (pp. 367-390).
 Lubik, T, & Schorfheide, F. (2005). A Bayesian Look at New Open Economy Macroeconomics. NBER Macroeconomics Annual Vol. 20 (2005), pp. 313-366 (54 pages).
 Lubik, T., & Schorfheide, F. (2003). Computing Sunspot Equilibria in Linear Rational Expectations Models. Journal of Economic Dynamics and Control. 28, 273-285.
 Clarida, R., & Gali, J., & Gertler, M. (2000). Monetary Policy Rules and macroeconomic Stability: Evidence and Some Theory. Quarterly Journal of Economics, 3(5), 147-180.
Matsuyama, K. (1990). Sunspot Equilibria (Rational Bubbles) in a Model of Money – in- The- Utility Function. Journal of Monetary Economics. 25, 137-144.
Sims, C. (2002). Solving Linear Rational Expectations Models. Computational conomics. 20(1), 1-20.
Shell, K. (1977). Monnaie et Allocation Intertemporelle. Communication to Roy-Malinvaud Seminar. Mimeo, Paris.
Cho, S., & McCallum, B. (2010). Another Weakness of Determinacy as a Selection Criteria for Rational Expectations Models. Carnegie Mellon Memo.
. Clarida, R., & Gali, J., & Gertler, M. (2000). Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory. Quarterly Journal of Economics, 3(5), 147-180.
Argia M. Sbordone, Andrea Tambalotti, Krishna Rao, and Kieran Walsh (2010) "Policy Analysis Using DSGE Models: An Introduction FRBNY Economic Policy Review /October 2010.
Castelnuovo, E. and Nisticò, S. (2010). Stock market conditions and monetary policy in a DSGE model for the U.S, Journal of Economic Dynamics and Control, 2010, Vol. 34, Issue 9, 1700-1731.
Miao, j., Wang.p., Xu, z. (2015). A Bayesian dynamic stochastic general equilibrium model of stock market bubbles and business cycles: Journal of Quantitative Economics 6, 599–635.
Klaus Adam,K ., Merkel, S ,. (2019): Stock price cycles and business cycles, ECB 1 Working Paper Series No 2316 / September 2019.
Seonghoon Cho, Bennett T. McCallum, (2009): Another Weakness of “Determinacy” as a Selection Criterion for Rational Expectations Models, Tepper School 256, Carnegie Mellon University, Pittsburgh, PA 15213 USA and b National Bureau of Economic Research, Cambridge, MA 02138 USA.
M Campello, JR Graham (2013) : Do Stock Prices influence Corporate Decisions? Evidence from the Technology Bubble, Journal of Financial Economics, 2013 – Elsevier, Volume 107, Issue 1, January 2013, Pages 89-110.
Eugene F. Fama,(1981) : Stock Returns, Real Activity, Inflation, and Money, The American Economic Review, Vol. 71, No. 4 (Sep., 1981), pp. 545-565 (21 pages)
  Nicola Gennaioli, Andrei Shleifer, Robert Vishny (2015): Neglected Risks: The Psychology of Financial Crises. American Economic Review, vol. 105, no. 5, May 2015, (pp. 310-14).
                   Efrem Castelnuovo, Salvatore Nisticò: Stock market conditions and monetary policy in a DSGE model for the U.S. Journal of Economic Dynamics and Control, Elsevier, 2010, 34 (9), pp.1700.1731.
Kurz, Mordecai; Jin, Hehui; Motolese, Maurizio: The role of expectations in economic fluctuations and the efficacy of monetary policy, Journal of Economic Dynamics and Control, Volume 29, Issue 11, November 2005, Pages 2017-2065.
Journal of Iranian Economic Issues
Volume 8, Issue 1
June 2021
Pages 1-28

Files

History

  • Receive Date: 24 November 2020
  • Revise Date: 27 December 2020
  • Accept Date: 22 February 2021

Share

How to cite

Statistics