Stock prices and monetary policy: Analysis of a Bayesian DSGE model

Hoshino, Satoshi and Ida, Daisuke (2025): Stock prices and monetary policy: Analysis of a Bayesian DSGE model. Forthcoming in: Economic Modelling

Abstract

This study evaluates the reaction of stock prices to monetary policy in Japan during the 1980s. We employ Bayesian estimation of the dynamic stochastic general equilibrium model, revealing the presence of the wealth channel from increased stock prices in Japan. We argue that the Bank of Japan (BOJ) may have implemented its monetary policy by targeting stock price stability, inflation and the output gap. Our results indicate that, while the BOJ may have reacted to stock prices, a monetary contraction could not prevent deviations from their fundamental values.

• Item Type: MPRA Paper
• English Title: Stock prices and monetary policy: An analysis of a Bayesian DSGE model
• Language: English
• Keywords: Monetary policy; Bayesian estimation; DSGE model; Stock prices; Wealth effect
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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