Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209895 
Year of Publication: 
2008
Series/Report no.: 
Working Paper No. 2008/4
Publisher: 
Norges Bank, Oslo
Abstract: 
We estimate the interdependence between US monetary policy and the S&P 500 using structural VAR methodology. A solution is proposed to the simultaneity problem of identifying monetary and stock price shocks by using a combination of short-run and long-run restrictions that maintains the qualitative properties of a monetary policy shock found in the established literature (Christiano et al., 1999). We find great interdependence between interest rate setting and real stock prices. Real stock prices immediately fall by 7-9 percent due to a monetary policy shock that raises the federal funds rate by 100 basis points. A stock price shock increasing real stock prices by one percent leads to an increase in the interest rate of close to 4 basis points.
Subjects: 
VAR
monetary policy
asset prices
identification
JEL: 
E61
E52
E43
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-431-4
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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