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Stock market booms and monetary policy in the twentieth century

Listed author(s):
  • Michael D. Bordo
  • David C. Wheelock

This article examines the association between stock market booms and monetary policy in the United States and nine other developed countries during the 20th century. The authors find, as was true of the U.S. stock market boom of 1994-2000, that booms typically arose during periods of above-average growth of real output and below-average inflation, suggesting that booms reflected both real macroeconomic phenomena and monetary policy. They find little evidence that booms were fueled by excessive liquidity. Booms often ended within a few months of an increase in inflation and consequent monetary policy tightening. They find few differences across the different monetary policy regimes of the century.

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File URL: https://files.stlouisfed.org/files/htdocs/publications/review/07/03/BordoWheelock.pdf
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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2007)
Issue (Month): Mar ()
Pages: 91-122

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Handle: RePEc:fip:fedlrv:y:2007:i:mar:p:91-122:n:v.89no.2
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  1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, 06.
  2. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
  3. Charles Calomiris & David Wheelock, 1998. "Was the Great Depression a Watershed for American Monetary Policy?," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 23-66 National Bureau of Economic Research, Inc.
  4. Stephen G Cecchetti, 2003. "What the FOMC Says and Does When the Stock Market Booms," RBA Annual Conference Volume,in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy Reserve Bank of Australia.
  5. Michael D. Bordo & Christopher J. Erceg & Andrew T. Levin & Ryan Michaels, 2007. "Three great American disinflations," Proceedings, Federal Reserve Bank of San Francisco.
  6. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages 781-850 National Bureau of Economic Research, Inc.
  7. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
  8. Michael D. Bordo & David C. Wheelock, 2004. "Monetary policy and asset prices: a look back at past U.S. stock market booms," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 19-44.
  9. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  10. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402 National Bureau of Economic Research, Inc.
  11. Adrian R. Pagan & Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 23-46.
  12. M.F. Bryan & S.G. Cecchetti & R. O'Sullivan, 2001. "Asset Prices in the Measurement of Inflation," DNB Staff Reports (discontinued) 62, Netherlands Central Bank.
  13. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 639-669.
  14. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-361, May.
  15. David C. Wheelock, 1992. "Monetary policy in the Great Depression: what the Fed did and why," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-28.
  16. Goodhart, Charles & Hofmann, Boris, 2000. "Do Asset Prices Help to Predict Consumer Price Inflation?," Manchester School, University of Manchester, vol. 68(0), pages 122-140, Supplemen.
  17. Michael D. Bordo & David C. Wheelock, 2006. "When do stock market booms occur? the macroeconomic and policy environments of 20th century booms," Working Papers 2006-051, Federal Reserve Bank of St. Louis.
  18. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
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