Preliminary and Incomplete Do Not Quote without Permission the Stock Market and the Fed
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چکیده
The paper investigates the relationship between the stock market and the monetary policy of the Federal Reserve in the last twenty years. To this purpose we construct an Index of Stock Price Misalignment in which the fundamental value of the stocks is computed on the basis of the discounted cash flow approach and we then include this index, among the regressors, into a forward looking Taylor rule. Our findings show that the Fed reacts to deviations from fundamental values on the stock exchange by raising the Fed Funds rate.
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Financial market volatility and the business cycle: a stochastic volatility approach
This is an extended abstract of the paper. All the results shown are preliminary and incomplete. Do not quote without permission.
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