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A Long-Run Approach to Money, Unemployment and Equity Prices

Author

Listed:
  • Kuk Mo Jung

    (Department of Economics, Sogang University, Seoul)

  • Ju Hyun Pyun

    (Korea University Business School, Seoul)

Abstract

A long-run relationship between money (inflation or interest rates), unemployment, and equity prices are studied. We first document robust empirical evidence that a statistically significant joint relationship between the long term trends of three variables exists in the post-WWII U.S. data: (i) a positive relationship between inflation (or interest rates) and unemployment; (ii) a negative relationship between unemployment and equity prices; and (iii) a negative relationship between inflation (or interest rates) and equity prices. Then, we provide a unified framework that incorporates money, unemployment, and equity prices with microfoundation and empirical relevance. The model predicts the empirically found joint relationship in the long run. The calibration exercises also show that the model results driven solely by US monetary policy can account for 62.9% and 29.8% of variations of the long-term trends of US unemployment rate and real equity prices, respectively

Suggested Citation

  • Kuk Mo Jung & Ju Hyun Pyun, 2020. "A Long-Run Approach to Money, Unemployment and Equity Prices," Working Papers 2001, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:2001
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    References listed on IDEAS

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    Cited by:

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    2. Mohammed Ait Lahcen & Garth Baughman & Hugo van Buggenum, 2023. "Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax," Opportunity and Inclusive Growth Institute Working Papers 073, Federal Reserve Bank of Minneapolis.
    3. Ait Lahcen, Mohammed & Baughman, Garth & Rabinovich, Stanislav & van Buggenum, Hugo, 2022. "Nonlinear unemployment effects of the inflation tax," European Economic Review, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Inflation; Unemployment; Equity Prices; SearchModels;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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