John, Tatom (2009): U.S. Monetary Policy and Stock Prices: Should the Fed Attempt to Control Stock Prices?
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This article rejects the linkages in proposals that the Federal Reserve Bank (Fed) target equity prices. The real federal funds rate (RFF) and stock prices (SP) are uncorrelated; causality tests show a positive effect of SP on RFF and a negative effect of SP on RFF. These results occur as part of the dynamics of a negative cointegrated relationship between SP and RFF. A theoretically expected inverse relation between SP and inflation accounts for the results. The negative effect of SP on FF is also confirmed in a Taylor Rule estimate. Higher stock prices anticipate lower, not higher, inflation.
|Item Type:||MPRA Paper|
|Original Title:||U.S. Monetary Policy and Stock Prices: Should the Fed Attempt to Control Stock Prices?|
|Keywords:||Monetary Policy; Bubbles; Asset Prices; Inflation.|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||John Tatom|
|Date Deposited:||07. Jan 2010 09:21|
|Last Modified:||14. Feb 2013 01:18|
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