Earlier versions of this article were presented at an economics seminar at the Brown Bag Macroeconomics Seminar of the Federal Reserve Bank of Chicago; at the European Financial Management Association Meetings in Lugano, Switzerland; the Euro Financial Modeling Group in Capri, Italy; and at the University of Northern Illinois. We are grateful to seminar and conference participants for their numerous helpful suggestions. We are especially thankful to Philip Bartholomew, Elijah Brewer, Marsha Courchane, Charles Evans, Lars Hansen, George Kaufman, James Moser, and Francois Velde for their valuable comments that assisted us in improving our work. We are also grateful to two anonymous referees of Economic Inquiry who made several valuable suggestions that improved the methodology of our article. All remaining errors are our own responsibility.
Monetary Policy and the U.S. Stock Market
Version of Record online: 26 MAR 2007
Volume 42, Issue 3, pages 387–401, July 2004
How to Cite
Hayford, M. D. and Malliaris, A. G. (2004), Monetary Policy and the U.S. Stock Market. Economic Inquiry, 42: 387–401. doi: 10.1093/ei/cbh068
- Issue online: 26 MAR 2007
- Version of Record online: 26 MAR 2007
What is the influence of stock market valuations on monetary policy? We use a forward-looking Taylor rule model to examine if monetary policy since the 19 October 1987 stock market crash has been influenced by the valuation of the stock market. We estimate the model using revised and real-time data and find no empirical evidence that the Federal Reserve policy attempted to moderate stock market valuations during the late 1990s despite the “irrational exuberance” comments by Chairman Greenspan. Actually, the empirical evidence suggests that the Fed accommodated the high valuations of the stock market during this period.