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The impact of money supply on stock prices and stock bubbles

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  • Sirucek, Martin

Abstract

This article is focused on the effect and implication of a change in the money supply for US capital market. This market was chosen according to his part on the global market capitalization. Namely it is the Dow Jones Industrial Average (DJIA), which was chosen according to his long history, global sense and stabile construction. The money supply will be measured by the wider aggregate M2 and aggregate MZM (money with zero maturity). The goal of this paper is detect, if the money supply influence the stock indices in period 1967 - 2011, if the impact of both money aggregates is near the same and how the money supply influence the bubble creation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40919.

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Date of creation: 29 Jun 2012
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Handle: RePEc:pra:mprapa:40919

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Keywords: money supply; stock index; cointegration; unit root test; Granger test;

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  1. Fazal Husain & Tariq Mahmood, 1999. "Monetary Expansion and Stock Returns in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 38(4), pages 769-776.
  2. Douglas K. Pearce & V. Vance Roley, 1985. "Stock Prices and Economic News," NBER Working Papers 1296, National Bureau of Economic Research, Inc.
  3. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, American Finance Association, vol. 31(2), pages 447-58, May.
  4. Kimura, Takeshi & Kurozumi, Takushi, 2007. "Optimal monetary policy in a micro-founded model with parameter uncertainty," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(2), pages 399-431, February.
  5. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 115-146, November.
  6. Jan Hanousek & Randall K. Filer, 2000. "The Relationship Between Economic Factors and Equity Markets in Central Europe," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 8(3), pages 623-638, November.
  7. Kraft, John & Kraft, Arthur, 1977. "Determinants of Common Stock Prices: A Time Series Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 32(2), pages 417-25, May.
  8. Rozeff, Michael S., 1974. "Money and stock prices : Market efficiency and the lag in effect of monetary policy," Journal of Financial Economics, Elsevier, Elsevier, vol. 1(3), pages 245-302, September.
  9. Foresti, Pasquale, 2006. "Testing for Granger causality between stock prices and economic growth," MPRA Paper 2962, University Library of Munich, Germany, revised 2007.
  10. Malliaris, A. G. & Urrutia, Jorge L., 1991. "An empirical investigation among real, monetary and financial variables," Economics Letters, Elsevier, Elsevier, vol. 37(2), pages 151-158, October.
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