Stock Prices, Output and the Monetary Regime

Robert Flood () and Nancy Marion ()

Open Economies Review, 2006, vol. 17, issue 2, 147-173

Abstract: Should monetary policy react to stock prices? The answer depends on whether stock prices are good predictors of future economic activity. Using long annual time-series data for the G-7 countries, data going back over 150 years for some countries, we find that stock prices do not systematically predict output growth regardless of the monetary regime in effect. We also find no evidence of a nonlinear relationship between stock prices and output except during the gold standard, when stock price booms and busts had some predictive power for output growth volatility. Copyright Springer Science + Business Media, LLC 2006

Keywords: stock prices; monetary policy; output volatility (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s11079-006-6808-3

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