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Dynamic Interactions among the Stock Market, Federal Funds Rate, Inflation, and Economic Activity

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  • Nikiforos T. Laopodis

Abstract

This paper examines the dynamic interactions among the equity market, economic activity, inflation, and monetary policy under three monetary policy regimes using bivariate and multivariate vector autoregressive cointegrating specifications. The bivariate results for the real stock returns-inflation pair weakly support a negative correlation in the 1970s and 1980s. While the bivariate findings suggest a weak, negative relationship between real returns and the federal funds in the 1970s and 1980s, the multivariate findings strongly support short-term linkages in the 1970s. There appears to be no consistent dynamic relationship between monetary policy and stock prices in that the relationship differs across monetary regimes. Copyright 2006, The Eastern Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2006.00155.x
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Bibliographic Info

Article provided by Eastern Finance Association in its journal Financial Review.

Volume (Year): 41 (2006)
Issue (Month): 4 (November)
Pages: 513-545

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Handle: RePEc:bla:finrev:v:41:y:2006:i:4:p:513-545

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Web page: http://www.easternfinance.org/
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Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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Cited by:
  1. Camilo Serrano & Martin Hoesli, 2012. "Fractional Cointegration Analysis of Securitized Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 319-338, April.
  2. Nikolaos Giannellis & Angelos Kanas & Athanasios P. Papadopoulos, 2010. "Asymmetric Volatility Spillovers between Stock Market and Real Activity: Evidence from the UK and the US," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 429-445, December.
  3. Laopodis, Nikiforos T., 2011. "Equity prices and macroeconomic fundamentals: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 247-276, April.
  4. Nikolaos Giannellis & Athanasios Papadopoulos & Angelos Kanas, 2008. "Asymmetric Volatility Spillovers between Stock Market and Real Activity: Evidence from UK and US," Working Papers 0807, University of Crete, Department of Economics.
  5. Laopodis, Nikiforos T., 2009. "Are fundamentals still relevant for European economies in the post-Euro period?," Economic Modelling, Elsevier, vol. 26(5), pages 835-850, September.
  6. Chris Florackis & Alexandros Kontonikas & Alexandros Kostakis, 2010. "Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis," Working Papers 2011_22, Business School - Economics, University of Glasgow, revised Apr 2011.
  7. Laopodis, Nikiforos T., 2009. "Fiscal policy and stock market efficiency: Evidence for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 633-650, May.

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