A Long-Run Approach to Money, Unemployment and Equity Prices

Kuk Mo Jung () and Ju Hyun Pyun ()
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Kuk Mo Jung: Department of Economics, Sogang University, Seoul
Ju Hyun Pyun: Korea University Business School, Seoul

No 2001, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: A long-run relationship between money (inflation or interest rates), unemployment, and equity prices are studied. We first document robust empirical evidence that a statistically significant joint relationship between the long term trends of three variables exists in the post-WWII U.S. data: (i) a positive relationship between inflation (or interest rates) and unemployment; (ii) a negative relationship between unemployment and equity prices; and (iii) a negative relationship between inflation (or interest rates) and equity prices. Then, we provide a unified framework that incorporates money, unemployment, and equity prices with microfoundation and empirical relevance. The model predicts the empirically found joint relationship in the long run. The calibration exercises also show that the model results driven solely by US monetary policy can account for 62.9% and 29.8% of variations of the long-term trends of US unemployment rate and real equity prices, respectively

Keywords: Inflation; Unemployment; Equity Prices; SearchModels (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:2001

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