Dynamic linkages between monetary policy and the stock market

Dynamic linkages between monetary policy and the stock market This paper examines the dynamic linkages between the federal funds rate and the stock market during the 1970–2004 period using the VAR methodology. We detected a disconnection between Fed actions and market responses in the 1990s relative to the 1970s and 1980s. Upon further analyses, we observed asymmetric effects of monetary policy actions on the stock market and that such actions were more turbulent during bear markets than bull markets. Overall, our results appear to suggest that there was consistent dynamic relationship between the conduct of monetary policy and the corresponding behavior by the stock market during the last three decades. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Dynamic linkages between monetary policy and the stock market

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0154-7
Publisher site
See Article on Publisher Site

Abstract

This paper examines the dynamic linkages between the federal funds rate and the stock market during the 1970–2004 period using the VAR methodology. We detected a disconnection between Fed actions and market responses in the 1990s relative to the 1970s and 1980s. Upon further analyses, we observed asymmetric effects of monetary policy actions on the stock market and that such actions were more turbulent during bear markets than bull markets. Overall, our results appear to suggest that there was consistent dynamic relationship between the conduct of monetary policy and the corresponding behavior by the stock market during the last three decades.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Dec 17, 2009

References

  • What moves the stock and bond markets? A variance decomposition for long-term asset returns
    Campbell, JY; Ammer, J
  • Stock prices, earnings, and expected dividends
    Campbell, JY; Shiller, R

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