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Stock Market Volatility and the Business Cycle

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Abstract

In this paper we provide a review of the literature on the link between stock market volatility and aggregate demand. In particular, we focus on the implications of the so-called uncertainty hypothesis according to which it is primarily the uncertainty associated with stock market fluctuations that influences aggregate demand. Empirical studies find that stock market volatility indeed feeds back into the real economy.

Suggested Citation

  • Burkhard Raunig & Johann Scharler, 2010. "Stock Market Volatility and the Business Cycle," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 54-63.
  • Handle: RePEc:onb:oenbmp:y:2010:i:2:b:3
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    File URL: https://www.oenb.at/dam/jcr:a85704c7-fd37-4d02-85ce-f117015bfe68/mop_2010_q2_analyses03_tcm16-198122.pdf
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    Keywords

    uncertainty hypothesis; conditional volatility; business cycle;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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