IDEAS home Printed from https://ideas.repec.org/a/kap/openec/v17y2006i2p147-173.html
   My bibliography  Save this article

Stock Prices, Output and the Monetary Regime

Author

Listed:
  • Robert Flood
  • Nancy Marion

Abstract

Should monetary policy react to stock prices? The answer depends on whether stock prices are good predictors of future economic activity. Using long annual time-series data for the G-7 countries, data going back over 150 years for some countries, we find that stock prices do not systematically predict output growth regardless of the monetary regime in effect. We also find no evidence of a nonlinear relationship between stock prices and output except during the gold standard, when stock price booms and busts had some predictive power for output growth volatility. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Robert Flood & Nancy Marion, 2006. "Stock Prices, Output and the Monetary Regime," Open Economies Review, Springer, vol. 17(2), pages 147-173, April.
    • Handle: RePEc:kap:openec:v:17:y:2006:i:2:p:147-173
    DOI: 10.1007/s11079-006-6808-3
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11079-006-6808-3
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11079-006-6808-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cecchetti, Stephen G. & Kashyap, Anil K, 1996. "International cycles," European Economic Review, Elsevier, vol. 40(2), pages 331-360, February.
    2. Barry Eichengreen & David Leblang, 2003. "Capital account liberalization and growth: was Mr. Mahathir right?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 205-224.
    3. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
    4. Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc.
    5. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q IV), pages 17-51.
    6. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
    7. Timothy Cogley, 1999. "Should the Fed take deliberate steps to deflate asset price bubbles?," Economic Review, Federal Reserve Bank of San Francisco, pages 42-52.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Charles O. Manasseh & Nnah M. Iroha & Kingsley I. Okere & Ifeoma C. Nwakoby & Ogochukwu C. Okanya & Nnenna Nwonye & Onuselogu Odidi & Oliver I. Inyiama, 2022. "Application of Markov chain to share price movement in Nigeria (1985–2019)," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Conlon, 2005. "Should Central Banks Burst Bubbles?," Game Theory and Information 0508007, University Library of Munich, Germany.
    2. Fernando Alexandre & Pedro Bação, 2005. "Monetary policy and asset prices: the investment channel," NIPE Working Papers 3/2005, NIPE - Universidade do Minho.
    3. Pierre Siklos & Martin Bohl, 2009. "Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule," Open Economies Review, Springer, vol. 20(1), pages 39-59, February.
    4. Michael D. Bordo & David C. Wheelock, 2004. "Monetary policy and asset prices: a look back at past U.S. stock market booms," Review, Federal Reserve Bank of St. Louis, vol. 86(Nov), pages 19-44.
    5. Kontonikas, Alexandros & Ioannidis, Christos, 2005. "Should monetary policy respond to asset price misalignments?," Economic Modelling, Elsevier, vol. 22(6), pages 1105-1121, December.
    6. Ansgar Belke & Marcel Wiedmann, 2005. "Boom or Bubble in the US Real Estate Market?," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 260/2005, Department of Economics, University of Hohenheim, Germany.
    7. Kai, Guo & Conlon, John R., 2007. "Why Bubble-Bursting Is Unpredictable: Welfare Effects Of Anti-Bubble Policy When Central Banks Make Mistakes," MPRA Paper 5927, University Library of Munich, Germany.
    8. Zampolli, Fabrizio, 2006. "Optimal monetary policy in a regime-switching economy: The response to abrupt shifts in exchange rate dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1527-1567.
    9. Anna Schwartz, 2003. "Asset price inflation and monetary policy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(1), pages 1-14, March.
    10. Andrew J. Filardo, 2001. "Should monetary policy respond to asset price bubbles? : some experimental results," Research Working Paper RWP 01-04, Federal Reserve Bank of Kansas City.
    11. Taipalus, Katja, 2006. "Bubbles in the Finnish and US equities markets," Scientific Monographs, Bank of Finland, number 35/2006.
    12. Grégory Levieuge, 2005. "Politique monétaire et prix d'actifs," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 317-355.
    13. repec:zbw:bofism:2012_047 is not listed on IDEAS
    14. Maria Socorro Gochoco-Bautista, 2008. "Asset prices and monetary policy: booms and fat tails in East Asia," BIS Working Papers 243, Bank for International Settlements.
    15. Junning Cai, 2003. "Fundamental Paper Wealth and Monetary Policy," Macroeconomics 0309001, University Library of Munich, Germany.
    16. Siklos, Pierre L. & Bohl, Martin T. & Werner, Thomas, 2003. "Did the Bundesbank React to Stock Price Movements?," Discussion Paper Series 1: Economic Studies 2003,14, Deutsche Bundesbank.
    17. Andrew Filardo, 2004. "Monetary policy and asset price bubbles: calibrating the monetary policy trade-offs," BIS Working Papers 155, Bank for International Settlements.
    18. Helmut Wagner & Wolfram Berger, 2004. "Globalization, Financial Volatility and Monetary Policy," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 163-184, June.
    19. repec:zbw:bofism:2006_035 is not listed on IDEAS
    20. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047.
    21. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2012_047, July.
    22. Paulo M.M. Rodrigues & Rita Fradique Lourenço, 2015. "House prices: bubbles, exuberance or something else? Evidence from euro area countries," Working Papers w201517, Banco de Portugal, Economics and Research Department.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:17:y:2006:i:2:p:147-173. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.