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The impact of money supply on stock prices and stock bubbles

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  • Sirucek, Martin

Abstract

This article is focused on the effect and implication of a change in the money supply for US capital market. This market was chosen according to his part on the global market capitalization. Namely it is the Dow Jones Industrial Average (DJIA), which was chosen according to his long history, global sense and stabile construction. The money supply will be measured by the wider aggregate M2 and aggregate MZM (money with zero maturity). The goal of this paper is detect, if the money supply influence the stock indices in period 1967 - 2011, if the impact of both money aggregates is near the same and how the money supply influence the bubble creation.

Suggested Citation

  • Sirucek, Martin, 2012. "The impact of money supply on stock prices and stock bubbles," MPRA Paper 40919, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40919
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    File URL: https://mpra.ub.uni-muenchen.de/40919/1/MPRA_paper_40919.pdf
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    References listed on IDEAS

    as
    1. Pearce, Douglas K & Roley, V Vance, 1985. "Stock Prices and Economic News," The Journal of Business, University of Chicago Press, vol. 58(1), pages 49-67, January.
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    3. Kraft, John & Kraft, Arthur, 1977. "Determinants of Common Stock Prices: A Time Series Analysis," Journal of Finance, American Finance Association, vol. 32(2), pages 417-425, May.
    4. Rozeff, Michael S., 1974. "Money and stock prices : Market efficiency and the lag in effect of monetary policy," Journal of Financial Economics, Elsevier, vol. 1(3), pages 245-302, September.
    5. A. G. Malliaris & Jorge L. Urrutia, 2005. "An empirical investigation among real, monetary and financial variables," World Scientific Book Chapters,in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 3, pages 13-20 World Scientific Publishing Co. Pte. Ltd..
    6. Jeng, Chyong-Chiou & Butler, J. S. & Liu, Jin-Tan, 1990. "The informational efficiency of the stock market : The international evidence of 1921-1930," Economics Letters, Elsevier, vol. 34(2), pages 157-162, October.
    7. Jan Hanousek & Randall K. Filer, 2000. "The Relationship Between Economic Factors and Equity Markets in Central Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 623-638, November.
    8. Kimura, Takeshi & Kurozumi, Takushi, 2007. "Optimal monetary policy in a micro-founded model with parameter uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 399-431, February.
    9. Fazal Husain & Tariq Mahmood, 1999. "Monetary Expansion and Stock Returns in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 769-776.
    10. Foresti, Pasquale, 2006. "Testing for Granger causality between stock prices and economic growth," MPRA Paper 2962, University Library of Munich, Germany, revised 2007.
    11. Gerald P. Dwyer & R. W. Hafer, 1999. "Are money growth and inflation still related?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 32-43.
    12. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 31(2), pages 447-458, May.
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    More about this item

    Keywords

    money supply; stock index; cointegration; unit root test; Granger test;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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