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Monetary Policy and the U.S. Stock Market

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  • Marc D. Hayford
  • A. G. Malliaris

Abstract

What is the influence of stock market valuations on monetary policy? We use a forward-looking Taylor rule model to examine if monetary policy since the 19 October 1987 stock market crash has been influenced by the valuation of the stock market. We estimate the model using revised and real-time data and find no empirical evidence that the Federal Reserve policy attempted to moderate stock market valuations during the late 1990s despite the "irrational exuberance" comments by Chairman Greenspan. Actually, the empirical evidence suggests that the Fed accommodated the high valuations of the stock market during this period. (JEL E52, G12) Copyright 2004, Oxford University Press.

Suggested Citation

  • Marc D. Hayford & A. G. Malliaris, 2004. "Monetary Policy and the U.S. Stock Market," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 387-401, July.
    • Handle: RePEc:oup:ecinqu:v:42:y:2004:i:3:p:387-401
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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