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Stock market expectations, effects on prices and aggregate income

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  • Marcello SPANO'

Abstract

Greenwald and Stiglitz (1993) show that firms' capital structure (equity vs. debt) may strongly affect aggregate output and employ-ment as a consequence of undiversifiable bankruptcy costs. This paper extends the framework by analysing the macroeconomic effects of share price fluctuations which arise from the stock market and which are cor-related to prices of goods. The stock market appears to speed up the transmission mechanism linking nominal shocks to aggregate output and employment, as share price variations (bull and bear stock mar-ket) anticipate the real effects of aggregate price shocks before they occur.

Suggested Citation

  • Marcello SPANO', 2003. "Stock market expectations, effects on prices and aggregate income," Departmental Working Papers 2003-025, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2003-025
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    More about this item

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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