Can geography lock a society in stagnation?

Nguyen Thang Dao and Julio Dávila

No 2013030, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the three structures and find results stronger than previously documented especially in 2001-2008. We propose a “FedGap” variable which measures the deviation of Fed policy from the “Taylor Rule” in explanation and find it to be significant with economic meaning. We conclude that market responses proportionally to the size of the FedGap and it thus serves as a new “macro-state” factor which can explain the dynamic response patterns of financial markets. We also examine the issue from the bond market, and find similar results.

Keywords: real-time structure breaks; dynamic market response; monetary policy; Taylor Rule; FedGap (search for similar items in EconPapers)
JEL-codes: E44 G12 G14 G28 (search for similar items in EconPapers)
Date: 2013-07-04
New Economics Papers: this item is included in nep-mac and nep-sea
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Can geography lock a society in stagnation? (2013)
Working Paper: Can geography lock a society in stagnation? (2013)
Working Paper: Can geography lock a society in stagnation? (2013)
Working Paper: Can geography lock a society in stagnation? (2013)
Working Paper: Can geography lock a society in stagnation? (2013)
Working Paper: Can geography lock a society in stagnation? (2013)
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