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The U.S. Stock Market and Fundamentals: A Historical Decomposition

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  • David Dupuis
  • David Tessier

Abstract

The authors identify the fundamentals behind the dynamics of the U.S. stock market over the past 30 years. They specify a structural vector-error-correction model following the methodology of King, Plosser, Stock, and Watson (1991). This methodology identifies structural shocks with the imposition of long-run restrictions. It allows the authors to calculate an equilibrium measure of stock market value based on the permanent components of the time series. A better understanding of the components that drive stock market movements could provide insight into the potential effects of the recent technological revolution on the dynamics of the stock market's equilibrium value, as suggested by Hobijn and Jovanovic (2001).

Suggested Citation

  • David Dupuis & David Tessier, 2003. "The U.S. Stock Market and Fundamentals: A Historical Decomposition," Staff Working Papers 03-20, Bank of Canada.
    • Handle: RePEc:bca:bocawp:03-20
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    References listed on IDEAS

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    Cited by:

    1. Greg Tkacz & Carolyn Wilkins, 2008. "Linear and threshold forecasts of output and inflation using stock and housing prices," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(2), pages 131-151.
    2. Céline Gauthier & Fuchun Li, 2005. "Linking real activity and financial markets: the first steps towards a small estimated model for Canada," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 253-72, Bank for International Settlements.

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    More about this item

    Keywords

    Transmission of monetary policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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