Monetary Policy and Stock Market

Lecture 1
Monetary Policy and Stock Market
Lecture: The objective of this lecture is to test the hypothesis that that monetary policy responds to stock market movements. We study in details the arguments in favor and against
the above hypothesis, discuss the empirical framework and the hypothesis to be tested.
Lab: We use monthly data for UK, ranging from 1990 to 2011. After inspecting the data and constructing the appropriate variables, we implement the appropriate tests to analysis the above hypothesis. Results will be discussed in details.
Readings
Allen, F., Gale, D., 2001.Bubbles and crises.Economic Journal, 110, 236-55.
Bean, C.R., 2005. Asset prices, financial instability and monetary policy.American Economic Review 94, 14-18.
Bernanke, B. S., 2000. Monetary policy and asset price volatility. NBER Working Paper Series 7559.
Bernanke, B.S., Gertler, M., 1999. Monetary policy and asset market volatility. Federal Reserve Bank of St. Kansas City Economic Review 84, 17-52.
Bernanke, B. S., Gertler, M., 2001. Should Central Banks Respond to Movements in Asset Prices? American Economic Review 91, 253-257.
Bernanke, B.S., Mihov, I., 1998. Measuring monetary policy. Quarterly Journal of Economics 113, 869-902.
Bordo, M.D., Jeanne, O., 2002. Boom-busts in asset pricesm economic instability and monetary policy.NBER Working Paper Series 8966.
Cecchetti, S.G., Genberg, H., Wadwhani, S., 2002. Asset prices in flexible inflation targeting framework.NBER Working Paper Series 8970.
Cecchetti, S.G., Genberg, H., Lipsky, J., Wadwhani, S., 2000. Asset Prices and Central Bank Policy. The Geneva Report on the World Economy.
Fuhrer, J., Tootell, G., 2008. Eyes on the prize: How did the fed respond to the stock market? Journal of Monetary Economics 55, 796-805.
Filardo, A., 2000. Monetary policy and assert prices. Federal Reserve Bank of Kansas City Economic Review 85, 11-37.
Frait, J., Komarek, L., 2006. Monetary Policy and Asset Prices: What Role for Central Banks in New EU Member States? Department of Economics, University of Warwick, Working paper series 738.
Gilchrist, S., Leahy, J.V., 2002.Monetary policy and asset price.Journal of Monetary Economics 49, 75-97.
Godhart, C., Hofmann, B., 2002. Do asset prices help to predict consumer price index? The Manchester School 68, 122-40.
2
Goodfriend M., 2005. Interest rate policy should not react directly to asset prices, in Hunter, W.C., Kaufman, G.G., Pomerlano, M. (eds), Asset price bubbles: the implication for monetary, regulatory and international policies, MIT press.
Mishkin, F.S., 2001. The transmission mechanism and the role of asset prices in monetary policy.NBER Working Paper Series 8617.
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