THE INTERACTION OF MONETARY POLICY AND STOCK RETURNS

The “irrational exuberance” of the stock market in the late 1990s led to a discussion of the appropriate policy response by monetary authorities. Any response would be contingent on the stock market reaction to policy shocks. In this study, I employ a structural vector autoregression to estimate the...

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Bibliographic Details
Published in:The Journal of financial research 2006-12, Vol.29 (4), p.523-535
Main Author: Crowder, William J.
Format: Article
Language:English
Subjects:
C32
E44
Federal funds rate
Federal Reserve monetary policy
G19
Securities markets
Studies
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Summary:The “irrational exuberance” of the stock market in the late 1990s led to a discussion of the appropriate policy response by monetary authorities. Any response would be contingent on the stock market reaction to policy shocks. In this study, I employ a structural vector autoregression to estimate the response of the stock market returns to innovations in the federal funds rate. The role of the stock market in the Federal Reserve policy rule can also be examined empirically.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.2006.00192.x