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Oil, Equities, and the Zero Lower Bound

Deepa Dhume Datta, Benjamin K. Johannsen, Hannah Kwon and Robert Vigfusson ()

No 2018-058, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: From late 2008 to 2017, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence and theoretical justification that these changes resulted from nominal interest rates being constrained by the zero lower bound (ZLB). Although the ZLB alters the economic environment in theory, supportive empirical evidence has been lacking. Our paper provides clear evidence of the ZLB altering the economic environment, with implications for the effectiveness of fiscal and monetary policy.

Keywords: Equities; Macroeconomic surprises; New-keynesian model; Oil; Zero lower bound (search for similar items in EconPapers)
JEL-codes: F31 F41 E30 E01 C81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-mac and nep-opm
Date: 2018-08-17
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Working Paper: Oil, equities, and the zero lower bound (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-58

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DOI: 10.17016/FEDS.2018.058

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