This section presents the results of the estimation. In table 1 we present the results of running regression specifications (1) and (2) using OLS and GMM instrumental variable estimation. We have used the S and P 500, Dow Jones as well as the FTSE 100 indices as measures of stock market prices. All three have been included to verify whether the results obtained are robust to changes in stock market indices. For the GMM estimation, lagged values of inflation and the output gap have been used as instruments. Finally, we have incorporated a recession dummy in the 2nd specification. This dummy variable takes the value 1 for all quarters between 2007 Q3 and 2009 Q4. In table 1, the 1st column presents the results of running a simple OLS regression on equation (1). The intercept and the coefficient on inflation are positive and significant. However, the coefficient on the output gap, although quite large is not statistically significant. Thus, from the 1st column where the estimation was carried out of equation (1) we find that the interest rate responds only to the inflation. It does not respond to the output gap. Also, from the last row which presents the Wald test statistic which tests the hypothesis β = γ = 0.5, we find the statistic is highly significant. So, the null hypothesis is rejected by the 1st model. In column 2, the results of estimating the OLS specification (2) are presented. The wald test statistic is 89.25 which is highly significant....
This translates into the query of whether equity price levels as measured by indices such as the Dow Jones or the Standard and Poor 500 should be targeted explicitly by monetary policy or not. Most macroeconomists however are of the opinion that pursuing these queries is not worthwhile since targeting stock market prices requires identification of what the fundamental prices of an asset is before the extent to which the actual price has deviated from the fundamental or target price can be identified. In other words, ex-ante identification of a stock market bubble is extremely difficult. Since the fundamental price of a stock is not verifiable then the nature of deviation of actual prices remains unverifiable as well (Shiller, 1989; Salge, 1997). Bubbles, i.e., increase of prices steadily above fundamentals can be identified ex-post. In hindsight it is clear that the Nasdaq rise or the steady rise in Japanese asset prices in the late 1980’s were such bubbles. But during the respective phases these movements were not convincingly identified as anything other than reflecting fundamental price dynamics. Therefore under these difficulties of recognising stock market volatility in real time the true complexity of asking what the reaction of monetary authorities should be becomes clear. One possible direction suggested in literature is to make the simplifying assumption that the monetary authority is aware of the presence of a bubble and realizes that the collapse of the bubble is imminent. Post-collapse prices will revert back to the fundamental levels. Then ask what the appropriate reaction of the monetary authority should be under such assumptions. (Blanchard, 2000) Opinion among economists
Cite this document
(“The impact of stock market volatility on monetary policy Dissertation”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/10394-monetary-policy-and-stock-market
(The Impact of Stock Market Volatility on Monetary Policy Dissertation)
“The Impact of Stock Market Volatility on Monetary Policy Dissertation”, n.d. https://studentshare.net/finance-accounting/10394-monetary-policy-and-stock-market.
Cited: 0 times
The objective of the paper “The impact of stock market volatility on monetary policy” is to evaluate the significance of asset prices in the conduct of monetary policy. Note that there is both a normative and a positive part to the query…
The researcher will try to find out the effect of the oil prices on the stock markets of Gulf Council Countries considering all the factors which affects the stock market like the capital existing in the market, the gross domestic product, the unemployment rate etc. Is there a positive correlation between the two or there is a negative correlation between the two variables that would also be analyzed.
The author states that Japan and the United States are contrasts in terms of each country’s economic activity. The United States is a market based economy while Japan is an export based economy. Market based economy is deemed stronger since it is not solely dependent on its exports or imports to stimulate its economic activity.
Different research studies have been conducted in order to identify and explore the relationship between the monetary policy and stock market. The central bank has always been under pressure to come up with appropriate monetary policy in order to regulate inflation and output gap in the economy.
The author of the paper states that for the purposes of economic statistics and econometric calculations a wide range of tools and theories are available. An area of considerable utility is the field of calculations pertaining to quantity or variants, at an arbitrary point within a particular series.
To understand the project content and to be able to achieve the idea of the financial transaction taxes, it is essential that the sources below are carefully read and understood. These sources are also listed in the references section, along with other used sources.
Summary 3.1 Conclusion 3.2 Recommendation Bibliography APPENDICES Appendix A Appendix B Appendix C Appendix D Relationships among Economic Growth, Inflation, and Stock Market Returns: An Empirical Analysis of the United Kingdom 1. Introduction Research of global stock exchanges has revealed relationships between the movement of stock market rates of return over time and economic variables.
Recently, the US has decided to push forward with a second round of quantitative easing, while the UK is itself also contemplating a similar move. The controversy in the quantitative easing policy is that it tends to be inflationary, because of new money released in the market.
This study reviews the studies of other researchers and then randomly selects a group of developed and emerging markets to verify whether there exists significant opportunities for investment and risks in stock markets. The author analyses the risk-return relation of making investments in the emerging economies.
To illustrate how a stock market operates and spreads the wealth in one country, let us say Company-A has been so successful in its manufacturing operations that all its goods sell as fast they are produced. The firm knows that it could sell even more products if it could get enough money to build another factory.
The author states that financial market reforms were central to China’s commitment to the World Trade Organization, in which China became a member in 2001. Following China’s WTO membership, international investors gained easier access to the financial market. The Chinese government is trying to change the function of the two existing stock exchanges.
22 pages (5500 words)Dissertation
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you another Dissertation on topic The impact of stock market volatility on monetary policy for FREE!