Stock prices and monetary policy: Analysis of a Bayesian DSGE model

Satoshi Hoshino and Daisuke Ida

Economic Modelling, 2025, vol. 148, issue C

Abstract: This study evaluates the reaction of stock prices to monetary policy in Japan during the 1980s. We employ Bayesian estimation of the dynamic stochastic general equilibrium model, revealing the presence of the wealth channel from increased stock prices in Japan. We argue that the Bank of Japan (BOJ) may have implemented its monetary policy by targeting stock price stability, inflation and the output gap. Our results indicate that, while the BOJ may have reacted to stock prices, a monetary contraction could not prevent deviations from their fundamental values.

Keywords: Monetary policy; Bayesian estimation; DSGE model; Stock prices; Wealth effect (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Stock prices and monetary policy: Analysis of a Bayesian DSGE model (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:148:y:2025:i:c:s0264999325000707

DOI: 10.1016/j.econmod.2025.107075

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