Home > Working Papers

Working Paper 2008-012A

Search | View by Year | View by Category | View by Author

"Inflation, Monetary Policy and Stock Market Conditions"
by Michael D. Bordo, Michael J. Dueker, and David C. Wheelock

This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. We estimate a latent variable VAR to examine how macroeconomic and policy shocks affect the condition of the stock market. Further, we examine the contribution of various shocks to market conditions during particular episodes and find evidence that inflation and interest rate shocks had particularly strong impacts on market conditions in the postwar era. Disinflation shocks promoted market booms and inflation shocks contributed to busts. We conclude that central banks can contribute to financial market stability by minimizing unanticipated changes in inflation.

Full Text - Acrobat PDF (202k)

Notify Me of Updates for:
Category > Applied Econometrics
Category > Monetary Policy/Macroeconomics
Category > Finance
Author > David C. Wheelock
Author > Michael J. Dueker