Resource title

Eyes on the Prize: How Did the Fed Respond to the Stock Market?

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image for OpenScout resource :: Eyes on the Prize: How Did the Fed Respond to the Stock Market?

Resource description

The appropriate role for equity prices in monetary policy deliberations has been hotly debated for some time. Recent work suggests that equity prices have affected monetary policy decisions above and beyond their indirect effect on the traditional goal variables of the FOMC. However, the correlation between stock price movements and these other goal variables has made the identification of the equity price effect problematic. Previous studies have used a forecast that embodies a different information set from the one used by the FOMC, which could bias the estimated coefficient on equity prices. The authors show that, in fact, the methods used in the earlier literature fail to adequately disentangle the observational equivalence problem. The authors then show that after controlling for the information that actually enters the FOMC fs decision ]making process, equity prices have had no independent effect on monetary policy.

Resource author

Geoff Tootell, Jeff Fuhrer

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/23448

Resource license

Adapt according to the presented license agreement and reference the original author.