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Monetary Policy, Financial Risk Mitigation And Unemployment In The United States

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  • Christopher E.S. WARBURTON
  • Richard BOOSE

Abstract

This paper uses time series data to investigate the effect of monetary policy on financial risk mitigation and unemployment. The literature generally reflects imprecise conclusions about the efficacy of the channels through which monetary policy is capable of achieving economic growth and stable prices. We have focused on stock prices, unemployment and monetary policy variables to see if there is a robust interaction among the variables and whether stock prices and monetary policy have significant explanatory power over employment, a very important variable for aggregate consumption. By subjecting our predictive hypothesis to tests and simulating the effects of macroeconomic shocks, we conclude that beyond the channels that directly impinge on the real sector, Tobin’s q is important for understanding how and why monetary policy is relevant to financial risk mitigation and the level of unemployment.

Suggested Citation

  • Christopher E.S. WARBURTON & Richard BOOSE, 2015. "Monetary Policy, Financial Risk Mitigation And Unemployment In The United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(2), pages 81-98.
    • Handle: RePEc:eaa:aeinde:v:15:y:2015:i:2_7
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    More about this item

    Keywords

    Financial risk; Liquidity; Monetary channels; Swap spread; Quantitative Easing.;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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