ABSTRACT The empirical results indicate that an increase in interest rates may stimulate a significant and persistent stock price bubble, which is consistent with rational asset price bubble theory. This finding suggests that central banks should implement anti‐turbulent monetary policy with caution, since inappropriate tightening may unintentionally amplify bubble dynamics rather than restrain them. In addition, periods of high investor sentiment are often followed by short‐term monetary tightening, indicating that sentiment is implicitly considered in policy adjustments. Moreover, irrational sentiment can play an important role in the emergence and expansion of asset price bubbles.
Gong et al. (Sun,) studied this question.