The (in)stability of stock returns and monetary policy interdependence in the US

Emiliano Carlevaro and Leandro Magnusson

No 20-27, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: We investigate the relationship between conventional monetary policy and stock market returns before, during, and after the zero lower bound (ZLB) period. Our inferential method, which exploits the exogenous changes in the variance of the structural shocks, allows us to recover both effects simultaneously without the need for restrictive identification assumptions. We find dramatic changes in the relationship between monetary policy and stock market returns over the period. Before the ZLB, policymakers reacted to stock returns. Their reaction has been muted since then. Regarding the stock market response, we find that, before the ZLB, a contractionary (expansionary) monetary policy reduces (increases) returns. Since the ZLB period, however, we cannot rule out a positive response of equity prices to monetary tightening.

Keywords: Structural VAR; Identification; Instability; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C12 E44 G10 (search for similar items in EconPapers)
Pages: 42
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: MD5 = 8c7a220fc25386b30c59c2ffd9cfe7b6
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%2 ... 0and%20Magnusson.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:20-27

Access Statistics for this paper

More papers in Economics Discussion / Working Papers from The University of Western Australia, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sam Tang ().