Inflation, Monetary Policy and Stock Market Conditions

32 Pages Posted: 26 May 2008 Last revised: 28 May 2008

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Michael Dueker

Russell Investments

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division

Date Written: May 2008

Abstract

This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. We estimate a latent variable VAR to examine how macroeconomic and policy shocks affect the condition of the stock market. Further, we examine the contribution of various shocks to market conditions during particular episodes and find evidence that inflation and interest rate shocks had particularly strong impacts on market conditions in the postwar era. Disinflation shocks promoted market booms and inflation shocks contributed to busts. We conclude that central banks can contribute to financial market stability by minimizing unanticipated changes in inflation.

Suggested Citation

Bordo, Michael D. and Dueker, Michael and Wheelock, David C., Inflation, Monetary Policy and Stock Market Conditions (May 2008). NBER Working Paper No. w14019. Available at SSRN: https://ssrn.com/abstract=1137111

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Dueker

Russell Investments ( email )

909 A Street
Tacoma, WA 98402
United States

HOME PAGE: http://sites.google.com/site/michaeldueker

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
71
Abstract Views
1,013
rank
324,803
PlumX Metrics