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Can geography lock a society in stagnation?

  • DAO, Nguyen-Thang


    (Université catholique de Louvain, CORE, Belgium; Vietnam Centre for Economic and Policy Research (VEPR), Hanoi, Vietnam)

  • DAVILA, Julio


    (Université catholique de Louvain, CORE, Belgium)

Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the three structures and find results stronger than previously documented especially in 2001-2008. We propose a “FedGap†variable which measures the deviation of Fed policy from the “Taylor Rule†in explanation and find it to be significant with economic meaning. We conclude that market responses proportionally to the size of the FedGap and it thus serves as a new “macro-state†factor which can explain the dynamic response patterns of financial markets. We also examine the issue from the bond market, and find similar results.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013030.

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Date of creation: 04 Jul 2013
Date of revision:
Handle: RePEc:cor:louvco:2013030
Contact details of provider: Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
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  1. Galor, Oded & Moav, Omer, 2000. "Natural Selection and the Origin of Economic Growth," Arbetsrapport 2000:5, Institute for Futures Studies.
  2. Shekhar Aiyar & Carl-Johan Dalgaard & Omer Moav, 2008. "Technological progress and regress in pre-industrial times," Journal of Economic Growth, Springer, vol. 13(2), pages 125-144, June.
  3. Mariani, Fabio & Pérez-Barahona, Agustín & Raffin, Natacha, 2010. "Life expectancy and the environment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 798-815, April.
  4. PIERRET, Diane, 2013. "The systemic risk of energy markets," CORE Discussion Papers 2013018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. repec:cup:cbooks:9780521715348 is not listed on IDEAS
  6. David de la Croix & Axel Gosseries, 2011. "The Natalist Bias of Pollution Control," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. David Croix & Davide Dottori, 2008. "Easter Island’s collapse: a tale of a population race," Journal of Economic Growth, Springer, vol. 13(1), pages 27-55, March.
  8. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
  9. repec:cup:cbooks:9780521887427 is not listed on IDEAS
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