Identifying the interdependence between US monetary policy and the stock market

Arbeitspapier

We estimate the interdependence between US monetary policy and the S&P 500 using structural VAR methodology. A solution is proposed to the simultaneity problem of identifying monetary and stock price shocks by using a combination of short-run and long-run restrictions that maintains the qualitative properties of a monetary policy shock found in the established literature (CEE 1999). We find great interdependence between interest rate setting and stock prices. Stock prices immediately fall by 1.5 percent due to a monetary policy shock that raises the federal funds rate by ten basis points. A stock price shock increasing stock prices by one percent leads to an increase in the interest rate of five basis points. Stock price shocks are orthogonal to the information set in the VAR model and can be interpreted as non-fundamental shocks. We attribute a major part of the surge in stock prices at the end of the 1990s to these non-fundamental shocks.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Memorandum ; No. 2005,12

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination
• Thema: VAR ; monetary policy ; asset prices ; identification ; Geldpolitik ; Aktienmarkt ; Börsenkurs ; VAR-Modell ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bjørnland, Hilde C. ; Leitemo, Kai
• Ereignis: Veröffentlichung
• (wer): University of Oslo, Department of Economics
• (wo): Oslo
• (wann): 2005

Weitere Informationen

• Handle: http://hdl.handle.net/10419/63189
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ