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Can geography lock a society in stagnation?

  • DAO, Nguyen Thang
  • DAVILA, Julio

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 RP with number -2491.

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Handle: RePEc:cor:louvrp:-2491
Note: In : Economics Letters, 120(3), 442-446, 2013
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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. DE LA CROIX, David & DOTTORI, Davide, . "Easter Island's collapse: a tale of a population race," CORE Discussion Papers RP -2062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. 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).
  4. Fabio Mariani & Agustin Pérez-Barahona & Natacha Raffin, 2008. "Life expectancy and the environment," Documents de travail du Centre d'Economie de la Sorbonne v08048, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. repec:cup:cbooks:9780521887427 is not listed on IDEAS
  6. 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.
  7. PIERRET, Diane, 2013. "The systemic risk of energy markets," CORE Discussion Papers 2013018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Aiyar, Shekhar & Dalgaard, Carl-Johan & Moav, Omer, 2006. "Technological Progress and Regress in Pre-Industrial Times," CEPR Discussion Papers 5454, C.E.P.R. Discussion Papers.
  9. repec:cup:cbooks:9780521715348 is not listed on IDEAS
  10. Fabio Mariani & Agustin Pérez-Barahona & Natacha Raffin, 2008. "Life expectancy and the environment," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00318677, HAL.
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