Oil, Equities, and the Zero Lower Bound

48 Pages Posted: 1 Apr 2017

See all articles by Deepa Datta

Deepa Datta

Board of Governors of the Federal Reserve System

Benjamin K. Johannsen

Board of Governors of the Federal Reserve System

Hannah Kwon

Independent; NERA Economic Consulting

Robert J. Vigfusson

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

Since 2008, oil and equity returns have moved together much more than they did previously. In addition, we show that both oil and equity returns have become more responsive to macroeconomic news. Before 2008, there is little evidence that oil returns were responsive to macroeconomic news. We argue that these results are consistent with a new-Keynesian model that includes oil and incorporates the zero lower bound on nominal interest rates. Our empirical findings lend support the model's implication that different rules apply at the zero lower bound.

Paper produced as part of the BIS Consultative Council for the Americas Research Network project "The Commodity Cycle: Macroeconomic and Financial Stability Implications"

Keywords: macroeconomic announcements, news, monetary policy, zero lower bound, fiscal policy, fiscal multiplier

JEL Classification: F31, F41, E30, E01, C81

Suggested Citation

Datta, Deepa and Johannsen, Benjamin K. and Kwon, Hannah and Vigfusson, Robert John, Oil, Equities, and the Zero Lower Bound (March 2017). BIS Working Paper No. 617, Available at SSRN: https://ssrn.com/abstract=2940539

Deepa Datta

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Benjamin K. Johannsen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Hannah Kwon

Independent

NERA Economic Consulting

50 Main Street, 14th Floor
White Plains, NY 10606
United States

Robert John Vigfusson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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