scholarly journals A Natural Experiment in Monetary Policy Covering Three Episodes of Growth and Decline in the Economy and the Stock Market

2005 ◽  
Vol 19 (4) ◽  
pp. 145-150 ◽  
Author(s):  
Milton Friedman
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Stock Market ◽  
Stock Prices ◽  
Natural Experiment ◽  
National Income ◽  
The United States ◽  
Monetary Policies ◽  
Rapid Economic Growth

The third of three episodes in a major natural experiment in monetary policy that started more than 80 years ago is just now coming to an end. The experiment consists in observing the effect on the economy and the stock market of the monetary policies followed during and after three very similar periods of rapid economic growth in response to rapid technological change: the booms of the 1920s in the United States, the 1980s in Japan and the 1990s in the United States. In this experiment, the quantity of money is the counterpart of the experimenter's input. The performance of the economy and the level of the stock market are the counterpart of the experimenter's output. The results of this natural experiment are clear, at least for major ups and downs: what happens to the quantity of money has a determinative effect on what happens to national income and to stock prices. The results strongly support Anna Schwartz's and my 1963 conjecture about the role of monetary policy in the Great Contraction. They also support the view that monetary policy deserves much credit for the mildness of the recession that followed the collapse of the U.S. boom in late 2000.

scholarly journals The NAIRU in Theory and Practice

2002 ◽  
Vol 16 (4) ◽  
pp. 115-136 ◽  
Author(s):  
Laurence Ball ◽  
N. Gregory Mankiw
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Productivity Growth ◽  
Inflation Rate ◽  
The United States ◽  
Theory And Practice ◽  
Business Cycle Theory ◽  
Changes Over Time ◽  
Over Time

This paper discusses the NAIRU—the non-accelerating inflation rate of unemployment. It first considers the role of the NAIRU concept in business cycle theory, arguing that this concept is implicit in any model in which monetary policy influences both inflation and unemployment. The exact value of the NAIRU is hard to measure, however, in part because it changes over time. The paper then discusses why the NAIRU changes and, in particular, why it fell in the United States during the 1990s. The most promising hypothesis is that the decline in the NAIRU is attributable to the acceleration in productivity growth.

scholarly journals Stock Market Investment and Inflation: Evidence from the United States and Canada

2021 ◽  
Vol 13 (3) ◽  
pp. 339-365
Author(s):  
Janesh Sami
Keyword(s):  
United States ◽  
Stock Market ◽  
Stock Prices ◽  
The United States ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Goods Market ◽  
Stock Market Investment ◽  
Robust Evidence

This paper examines the long-run relationship between goods prices and stock prices to understand whether stock market investment can help hedge against inflation in the United States (US) and Canada. This study employed an autoregressive distributed lag (ARDL) cointegration test developed by Pesaran, Shin, and Smith (2001), and finds evidence of a positive long-run economic relationship between stock prices and goods prices in both economies over the sample period 1960 to 2019. The long-run elasticity is above one for both economies implying that the developments in the goods market significantly affect the stock market. We undertake a suite of sensitivity checks and find robust evidence that the stock market investment can help hedge against inflation in the United States and Canada.

Concepts and Measurements of Economic Interdependence: The Case of the United States and Mexico

2016 ◽  
Vol 16 (1) ◽  
pp. 63-90 ◽  
Author(s):  
María del Rosío Barajas-Escamilla ◽  
Amir Kia ◽  
Maritza Sotomayor
Keyword(s):  
Monetary Policy ◽  
The United States ◽  
Economic Interdependence ◽  
Trade Integration ◽  
Monetary Policies ◽  
Alternative Approach ◽  
Short Run ◽  
Fiscal And Monetary Policy ◽  
The U.S

We developed a theoretical model capable to analyze U.S. fiscal and monetary policy effects on Mexican exports in order to provide an alternative approach to the study of economic interdependence. The model was estimated for the sample period of 1980–2013. The existing literature evidences quantified interdependence through trade flows and ignores the role of the U.S. fiscal and monetary policies. This paper uses the concept of sensitivity, from the economic interdependence literature, to verify the long and short run relationships between the U.S. and Mexico in a context of trade integration. Our findings confirm Mexico’s sensitivity to unanticipated shocks in particular coming from the U.S. monetary policy, the exchange rate and the world oil price.

scholarly journals Coronavirus: Impact on Stock Prices and Growth Expectations

2020 ◽  
Vol 10 (4) ◽  
pp. 574-597 ◽  
Author(s):  
Niels Joachim Gormsen ◽  
Ralph S J Koijen
Keyword(s):  
United States ◽  
European Union ◽  
Lower Bound ◽  
Stock Market ◽  
Stock Prices ◽  
The United States ◽  
The Novel ◽  
The European Union ◽  
Fiscal Stimulus ◽  
Novel Coronavirus

Abstract We use data from aggregate stock and dividend futures markets to quantify how investors’ expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of July 20th, our forecast of annual growth in dividends points to a decline of 8% in both the United States and Japan and a 14% decline in the European Union compared to January 1. Our forecast of GDP growth points to a decline of 2% in the United States and Japan and 3% in the European Union. The lower bound on the change in expected dividends is -17% in the United States and Japan and -28% in the European Union at the 2-year horizon. News about U.S. monetary policy and the fiscal stimulus bill around March 24 boosted the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in all geographies.

scholarly journals An Investigation Of Investors’ Use Of Reported Cash Flow And Accrual Information For Eight Countries

2011 ◽  
Vol 23 (4) ◽  
Author(s):  
Joan Hollister ◽  
Victoria Shoaf
Keyword(s):  
United States ◽  
Hong Kong ◽  
Stock Market ◽  
Cash Flow ◽  
Stock Prices ◽  
The United States ◽  
Cash Flows ◽  
Stock Market Returns ◽  
The United Kingdom ◽  
The Uk

Using 1995 through 1999 data from the United States and seven other countries with different sets of national accounting standards (Canada, France, Germany, Hong Kong, Japan, Malaysia, and the United Kingdom), we test whether the cash flow component of earnings is more persistent than the accrual component, and then whether the relative persistence of these two earnings components is reflected in stock market returns. Using the Mishkin model employed by Sloan (1996) to test the data for each of the countries, we find that, while reported cash flows are significantly more persistent than accruals in each of the eight accounting regimes, Canadian companies are the only ones for which the pricing of equity securities is clearly efficient with regard to cash flow and accrual information. While there is some evidence for this stock market efficiency for the UK and German companies, it is not conclusive. For firms from France, Hong Kong, Japan, Malaysia, and the United States, the differences observed between the persistence of cash flows and accruals are not reflected in stock prices.

HOW DOES THE MACROECONOMY RESPOND TO STOCK MARKET FLUCTUATIONS? THE ROLE OF SENTIMENT

2018 ◽  
Vol 24 (2) ◽  
pp. 421-446 ◽  
Author(s):  
Wei-Fong Pan
Keyword(s):  
United States ◽  
Stock Market ◽  
Stock Price ◽  
The United States ◽  
Macroeconomic Variables ◽  
Market Sentiment ◽  
Market Crashes ◽  
Stock Market Bubbles ◽  
Positive Shock

This study estimates the response of macroeconomic variables to stock market fluctuations in Japan and the United States. It emphasizes the economy's reaction to stock market bubbles and crashes. To do this, I propose a new way to identify bubbles and crashes by testing price-to-fundamental ratios using the newly developed trend-filtering approach. Regardless of the measures used, both countries' macroeconomy tends to respond positively to the positive shock of stock price. Asymmetric effects of the stock market are observed. Japan's macroeconomic variables, especially investment and industrial production, are more sensitive to market crashes, while those of the United States are more sensitive to stock bubbles. Finally, I provide evidence that market sentiment can affect the economy either directly or indirectly through the stock market.

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