The stock market and the Fed

Fabrizio Mattesini () and Leonardo Becchetti

Applied Financial Economics, 2009, vol. 19, issue 2, pages 99-110

Abstract: This article investigates the reaction of the Federal Reserve to developments in the stock market. The issue is analysed by first constructing an Index of Stock Price Misalignment (ISPM) in which the fundamental value of the stocks is computed on the basis of the discounted cash flow approach and by then including this index, among the regressors, into a forward looking Taylor rule. In accordance with the descriptive evidence, based mainly on the analysis of the Federal Open Market Committee (FOMC) meetings and public statements, our findings show that the Fed tends to lower the Fed funds rate when stock prices fall below their fundamental value, while there is no evidence of monetary stringency during episodes of exuberance in the stock market.

Date: 2009

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The stock market and the Fed (2008)
Working Paper: THE STOCK MARKET AND THE FED (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:apfiec:v:19:y:2009:i:2:p:99-110

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.html

Access Statistics for this article

Applied Financial Economics is edited by Mark P. Taylor

More articles in Applied Financial Economics from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().