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Monetary Policy, Aggregate Uncertainty, and the Stock Market

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  • Boyle, Glenn W
  • Peterson, James D

Abstract

The authors develop and analyze a simple general equilibrium model of asset pricing in a monetary economy where the growth rate in money is partially determined by the policy of the monetary authority. Their model implies that the relationship between stock prices and consumption risk is systematically dependent on the monetary policy regime, indicates that a rise in the 'noise' associated with a given future monetary policy unambiguously increases current stock prices, and formalizes the Geske-Roll (1983) explanation for the observed negative correlation between stock returns and inflation. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Boyle, Glenn W & Peterson, James D, 1995. "Monetary Policy, Aggregate Uncertainty, and the Stock Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 570-582, May.
  • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:570-82
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    Cited by:

    1. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    2. Sellin, Peter, 2001. " Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
    3. Christian Aubin & IBRAHIMA DIOUF & DOMINIQUE PEPIN, 2013. "Influence De La Politique Monetaire Sur Le Prix Des Actifs Financiers :Les Enseignements D’Un Modele Miu Applique A La Fed: Impact Of Monetary Policy On Asset Prices :Lessons From A Miu Model Applied ," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 56(3-4), pages 313-333.
    4. Ralph Chami & Thomas F. Cosimano & Connel Fullenkamp, 2001. "Capital Trading, Stock Trading, and the Inflation Tax on Equity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 575-606, July.
    5. Paul Söderlind, 2008. "Monetary Policy Effects On Financial Risk Premia," Manchester School, University of Manchester, vol. 76(6), pages 690-707, December.
    6. Najeb M.H. Masoud, 2013. "The Impact of Stock Market Performance upon Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 788-798.
    7. Travis D. Nesmith, 2005. "Solving stochastic money-in-the-utility-function models," Finance and Economics Discussion Series 2005-52, Board of Governors of the Federal Reserve System (U.S.).
    8. Du, Ding, 2006. "Monetary policy, stock returns and inflation," Journal of Economics and Business, Elsevier, vol. 58(1), pages 36-54.
    9. Robert-Paul Berben, 2007. "Does stock market uncertainty impair the use of monetary indicators in the euro area?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 13-23.
    10. Guerello, Chiara, 2016. "The effect of investors’ confidence on monetary policy transmission mechanism," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 248-266.

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