MONETARY POLICY, FINANCIAL RISK MITIGATION AND UNEMPLOYMENT IN THE UNITED STATES

Christopher Warburton and Richard Boose

Applied Econometrics and International Development, 2015, vol. 15, issue 2, 81-98

Abstract: This paper uses time series data to investigate the effect of monetary policy on financial risk mitigation and unemployment. The literature generally reflects imprecise conclusions about the efficacy of the channels through which monetary policy is capable of achieving economic growth and stable prices. We have focused on stock prices, unemployment and monetary policy variables to see if there is a robust interaction among the variables and whether stock prices and monetary policy have significant explanatory power over employment, a very important variable for aggregate consumption. By subjecting our predictive hypothesis to tests and simulating the effects of macroeconomic shocks, we conclude that beyond the channels that directly impinge on the real sector, Tobin’s q is important for understanding how and why monetary policy is relevant to financial risk mitigation and the level of unemployment.

Keywords: Financial risk; Liquidity; Monetary channels; Swap spread; Quantitative Easing. (search for similar items in EconPapers)
JEL-codes: E12 E51 E52 E62 (search for similar items in EconPapers)
Date: 2015
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