2007-05-26 papers

on Financial Development and Growth

Issue of 2007–05–26
one paper chosen by
Georg Man,

Monetary policy and stock market booms and busts in the 20th century By Michael D. Bordo; Michael J. Dueker; David C. Wheelock

Monetary policy and stock market booms and busts in the 20th century

By:	Michael D. Bordo; Michael J. Dueker; David C. Wheelock
Abstract:	This paper examines the association between monetary policy and stock market booms and busts in the United States, United Kingdom, and Germany during the 20th century. Booms tended to arise when output growth was rapid and inflation was low, and end within a few months of an increase in inflation and monetary policy tightening. Latent variable VAR analysis of post-war data finds that inflation has had a particularly strong impact on market conditions, with disinflation shocks moving the market toward a boom and positive inflation shocks moving the market toward a bust. We conclude that central banks can contribute to financial market stability by minimizing unanticipated changes in inflation.
Date:	2007
URL:	https://d.repec.org/n?u=RePEc:fip:fedlwp:2007-20

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