Quantitative Easing and the U.S. Stock Market: A Decision Tree Analysis

The Financial Crisis of 2007-09 caused the U.S. economy to experience a relatively long recession from December 2007 to June 2009. Both the U.S. government and the Federal Reserve undertook expansive fiscal and monetary policies to minimize both the severity and length of the recession. Most notably, the Federal Reserve initiated three rounds of unconventional monetary policies known as Quantitative Easing. These policies were intended to reduce long-term interest rates when the short term federal funds rates had reached the zero lower bound and could not become negative. It was argued that the lowering of longer-term interest rates would help the stock market and thus the wealth of consumers. This paper investigates this hypothesis and concludes that quantitative easing has contributed to the observed increases in the stock market’s significant recovery since its crash due to the financial crisis

Download Full-text

the Butterfly Effect: Coronavirus may Redefine the Global Currency Landscape

10.31235/osf.io/zus5h ◽

2020 ◽

Author(s):

Shaoshan Liu

Keyword(s):

National Debt ◽

Short Term ◽

Monetary Policies ◽

Limited Ability ◽

Ability To Pay ◽

Foreign Countries ◽

Rise Of China ◽

The Rise Of China ◽

The U.S

In Trump’s political viewpoint, all problems within the U.S. were caused by external problems, such as the rise of China, and thus Trump has rejected globalism and took on the policy of ‘America First’. Trump’s policy inevitably leads to the decoupling between the U.S. and China, and the recent coronavirus outbreak may catalyze the decoupling process. In short term, the U.S. fiscal and monetary rescue plans may expose the national debt and deficit problems, hurting foreign countries’ confidence of the U.S. ability to pay its obligations. In long term, the U.S. has limited ability to stimulate economy without hurting the U.S. dollar’s supremacy; whereas China has a greater ability to coordinate fiscal and monetary policies to stimulate economy. May the decoupling continues, the U.S.-China capital war becomes inevitable and it may redefine the global currency landscape.

Download Full-text

An empirical analysis of long-term Brazilian interest rates

PLoS ONE ◽

10.1371/journal.pone.0257313 ◽

2021 ◽

Vol 16 (9) ◽

pp. e0257313

Author(s):

Tanweer Akram ◽

Syed Al-Helal Uddin

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Policy Implications ◽

Government Bond ◽

Short Term ◽

Monetary Policies ◽

Government Bonds ◽

Macroeconomic Variables ◽

Brazilian Government

This paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data, in the context of the evolution of the key macroeconomic variables in Brazil. The results show that the current short-term interest rate has a decisive influence on the long-term interest rate on BGBs, after controlling for various key macroeconomic variables, such as inflation and industrial production. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the current short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.

Download Full-text

Long and Short-term Volatility Comovements in the East Asian Stock

Applied Economics and Finance ◽

10.11114/aef.v4i3.2087 ◽

2017 ◽

Vol 4 (3) ◽

pp. 14

Author(s):

Jin Yong Yang ◽

Sang-Heon Lee ◽

In-Sung Yeo

Keyword(s):

Financial Crisis ◽

Stock Market ◽

East Asia ◽

Stock Returns ◽

East Asian ◽

Short Term ◽

Volatility Clustering ◽

Volatility Model ◽

Starting Point

This study analyzed volatility comovement and contagion in the stock markets of four countries (China, Japan, Korea, and Taiwan) in East Asia, which are closely connected with each other geographically and economically in terms of short-term and long-term perspectives. The volatility of stock returns has complex properties of not only volatility clustering, but also long memory, regime change, and substantial outliers. This study reviewed the volatility comovement and contagion in a stock market from long-term and short-term perspectives with the Bivariate Markov Switching Multifractal (BMSM) volatility model that is known for explaining such characteristics well, in spite of using small number of parameters. The empirical analysis results are as follows: China has no significant correlation with the other three countries. Therefore, China stock market is regarded as isolated or segmented market. The influence of the financial crisis on East Asian countries varies depending on the country. Regardless of the starting point of the crisis, Korea and Taiwan are shown to be vulnerable to external impact, compared to China and Japan. From the perspective of the nature of crisis, financial crisis that occurred in 1997 in East Asia and South Europe in 2011 were identified as local shocks as they had an impact on only a few countries, while the global crisis in 2008 was identified as global shock because it caused significant short-term and/or mid and long-term volatility of all countries.

Download Full-text

IS U.S. TECHNOLOGY SECTOR IN A BUBBLE?

Herald of Ternopil National Economic University ◽

10.35774/jee2017.04.379 ◽

2017 ◽

pp. 379-394

Author(s):

Sebastjan Strasek ◽

Tadej Kelc

Keyword(s):

Monetary Policy ◽

Stock Market ◽

Interest Rates ◽

Quantitative Easing ◽

Tax Rates ◽

Technology Sector ◽

The Great Depression ◽

Current State ◽

Low Interest Rates ◽

The U.S

The paper is examines the issue if the U.S. technology sector is in the bubble. Our analysis is based on the study of relative indicators, especially on price-to-earnings ratio. We studied the last two historic bubbles and analyzed the current state on the U.S. stock market. We find that U.S. stock market is heavily overvalued, which can be argued with high values of the relative indicators compared to the historical average. Some of them indicate that market was valued higher only during the Great Depression in 1929 and during the technological bubble in 2000. Remarkably high values are the result of low interest rates and quantitative easing. The current expansive monetary policy is encouraging risky businesses and increasing margin debt. With potential abatement of tax rates and other measures of expansive fiscal politics, stock markets could reach even higher values.

Download Full-text

Why The Quantity Of Money Still Matters

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v3i2.2742 ◽

2011 ◽

Vol 3 (2) ◽

Author(s):

Michael Cosgrove ◽

Daniel Marsh

Keyword(s):

Interest Rates ◽

Federal Reserve ◽

Price Level ◽

Theory Model ◽

Conventional Wisdom ◽

Real Output ◽

Font Size ◽

Short Term ◽

Federal Funds ◽

Federal Funds Rate

The operating procedure of Federal Reserve policy focuses almost exclusively on interest rates, in particular short term rates such as the federal funds rate. Conventional wisdom today interprets a low federal funds rate as an indicator of an expansionary monetary policy, and a high federal funds rate as indicative of a contractionary policy. Our thesis is that this conventional wisdom is flawed. We develop a quantity theory model to illustrate how changes in the real money supply can impact both the price level and real output. We present data showing that when the Fed slows the rate of growth of the monetary base to approximately the growth rate of GDP, that this slowdown also impacts real variables. However, according to comments, the Federal Reserve pays little attention to the quantity of money. Finally we asked: Since the Federal Reserve pays little attention to the quantity of money, what variables does the FOMC likely consider in deciding to alter the federal funds rate? The answer, perhaps not surprisingly, appears to be variables readily measured and easily related to by the general public – prices and capacity.

Download Full-text

Expansionary or restrictive policies in the Eurozone? Dominating trends in the first two decades

Acta Oeconomica ◽

10.1556/032.2021.00020 ◽

2021 ◽

Vol 71 (3) ◽

pp. 405-430

Author(s):

Joanna Stawska ◽

Paulo Jorge Reis Mourao

Keyword(s):

Economic Policy ◽

Interest Rates ◽

Euro Area ◽

Structural Breaks ◽

Fiscal Policies ◽

Short Term ◽

Monetary Policies ◽

Switching Regimes ◽

Monetary And Fiscal Policy

Abstract Our aim is to identify periods of restrictive versus expansionary economic policy in the euro area in the last two decades. We firstly conducted the study for identifying the dominant trend in fiscal policies and then in monetary policies. We studied several fiscal outputs, focusing on the cyclical adjusted primary balance. We also analysed the European long-term and short-term interest rates. The study was conducted for several windows, namely for 3-, 4- and 5-year periods. Additional procedures were conducted for robustness checks, namely the study of structural breaks in the analysed time series as well as a study of them recurring to Markov-Switching Regimes models. For most of the analysed periods and subperiods of the series, we concluded for the presence of expansionary policies either in the fiscal or in monetary European domains. Finally, the results and the analysis of dependencies in the euro area economy favour the evidence that economic authorities in the euro area have sought to coordinate monetary and fiscal policy to stabilise the economy.

Download Full-text

Relações entre índices preço-lucro e retornos dos títulos públicos

Brazilian Review of Finance ◽

10.12660/rbfin.v18n3.2020.81644 ◽

2020 ◽

Vol 18 (3) ◽

pp. 27

Author(s):

Daniel Penido de Lima Amorim ◽

Marcos Antônio de Camargos

Keyword(s):

Stock Market ◽

Interest Rates ◽

Error Correction ◽

Financial Market ◽

Treasury Bonds ◽

Error Correction Models ◽

Distributed Lags ◽

The U.S

The ratios P/E1 and P/E10 or the cyclically adjusted price-to-earnings ratio are widely disseminated in the literature based on the U.S. stock market. This paper develops a method to construct P/E ratios for the Brazilian stock market. The purpose of this paper is to analyze the long-term relationships between both P/E1 and P/E10 and interest rates corresponding to the returns of treasury bonds, in order to test the Fed Model. In general, the period considered was from December 2004 to June 2018. Autoregressive distributed lags models were estimated, which can be represented as conditional error correction models. Results show significant long-term relationships between both P/E1 and P/E10 and the relevant interest rates, suggesting that the Fed Model is in line with the behavior of the Brazilian financial market.

Download Full-text

9.3. США: рынок федеральных фондов в условиях избытка ликвидности и перспектива монетарной политики

Audit and Financial Analysis ◽

10.38097/afa.2020.39.92.035 ◽

2020 ◽

Author(s):

V.Y. Cherkasov ◽

O.V. Kontsevich ◽

O.V. Kontsevich

Keyword(s):

United States ◽

The United States ◽

Quantitative Easing ◽

Short Term ◽

Federal Funds ◽

Excess Reserves ◽

Interest Rate Volatility ◽

Federal Funds Market ◽

To Come

Анализируются особенности денежно-кредитной политики в США после завершения количественного смягчения и нюансы, от которых зависит конъюнктура рынка федеральных фондов в условиях долговременного структурного профицита ликвидности. Объяснены причины усиления волатильности процентной ставки в последние месяцы 2019 года, что потребовало от ФРС использования оперативных инструментов регулирования ликвидности. Приведены аргументы, на основании которых авторы считают вероятным в будущем повторное применение количественных методов монетарной политики в США. Кратко описан риск, который влечет за собой вымывание избыточных резервов в наличный денежный оборот в связи с использованием доллара США за пределами государства-эмитента.The article analyzes the features of monetary policy in the United States after the completion of quantitative easing and the nuances that determine the environment in the federal funds market in the context of a long-term structural liquidity surplus. We explain the reasons for the increase in interest rate volatility in the last months of 2019, which required the Fed to use short-term liquidity stabilization tools, and argue our view why it seems likely that the FED to reuse quantitative policy in times to come. In conclusion we describe the risk entailed by excess reserves reallocation into cash circulation in light of US dollars use outside the issuing economy.

Download Full-text

A VAR Analysis Of US-China Economic Linkages

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v8i7.3152 ◽

2011 ◽

Vol 8 (7) ◽

Author(s):

Dene T. Hurley

Keyword(s):

Interest Rates ◽

Impulse Response ◽

Significant Role ◽

Variance Decomposition ◽

Short Term ◽

Treasury Bill ◽

Treasury Securities ◽

Var Analysis ◽

The U.S

An increase in Chinese purchases of U.S. treasury securities in parallel with Chinas commitment to maintain the value of the Yuan have been blamed in recent years for the divergence of the U.S. long-term and short-term interest rates. Results of the VECM, variance decomposition and impulse response analyses provided support for the growing speculations that growing Chinese demand for U.S. securities played a significant role in keeping the 10-year Treasury bill rate low while keeping the Yuan weak relative to the U.S. dollar. As for the U.S. long-term and short-term interest rates, the causality was found to run from the 10-year Treasury bill yield to the s rate which helps to explain why rising short-term rate in the U.S. since mid-2004 had little or no impact on the long-term rate.

Download Full-text

Joint Dynamics Of The U.S. Treasury Maturity Rates: Policy Implications For Central Banks

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i5.4237 ◽

2011 ◽

Vol 9 (5) ◽

pp. 1

Author(s):

Omid Sabbaghi

Keyword(s):

Central Bank ◽

Interest Rates ◽

Multivariate Time Series ◽

Policy Implications ◽

Impulse Responses ◽

Short Term ◽

Treasury Market ◽

Short Horizon ◽

The U.S

This paper examines whether there is a direct relationship between yields of differing maturities for the U.S. Treasury market. The hypothesis that long horizon rates may help to predict future short horizon rates, in addition to short horizon rates helping to predict future long horizon rates, provides the motivation for the present study. The proposed inter-relationship between the different interest rates exhibits important implications for central bank policy-making. Employing a multivariate time-series analysis, we find that spreads in the short-term rate tend to rise (fall) in response to rises in prior short-term (long-term) rate spreads. Additionally, spreads in the long term rates tend to decrease in response to prior rises in the 1 year Treasury rate spread. Finally, positive impulse responses for long term spreads largely derive from shocks to shorter term maturity spreads, while shocks to longer term maturity rates result in gradual negative impulse responses for maturity rates of shorter horizons. In sum, this paper provides evidence of important feedback relationships across the maturity spectrum in the U.S. Treasury market. An understanding of the maturity rate dynamics is crucial for future central bank interventions and for the pricing of options and other related financial instruments.

Download Full-text