THE BEHAVIOR OF U.S. SHORT-TERM INTEREST RATES SINCE OCTOBER 1979

Short-term interest rates in the United States have been “too high” since October 1979 in the sense that both unconditional and conditional forecasts, based on an estimated vector autoregression model summarizing the prior experience, underpredict short-term interest rates during this period. Although a nonstructural model cannot directly answer the question of why this has been so, comparisons of alternative conditional forecasts point to the post-October 1979 relationship between the growth of real income and the growth of real money balances as closely connected to the level and pattern of short-term interest rates. This finding is consistent with the authors' earlier conclusion, based on analysis of a small structural macroeconometric model, that the high average level of interest rates has been due to a combination of slow growth of (nominal) money supply and continuing price inflation, which together have kept real balances small in relation to prevailing levels of economic activity.     

RESPONSE OF STOCK PRICES TO MONEY SUPPLY ANNOUNCEMENTS: AUSTRALIAN EVIDENCE

This paper extends the literature on the money supply announcement effect by examining the response of stock prices to the monthly announcements of the money supply made in Australia. The unexpected component of the money supply change is identified using both a market based survey of expectations and rolling ARIMA time series models. The analysis is further extended to examine the impact of the money supply announcements during the period of monetary target-ting; the cross-sectional impact of the announcements across various stock price indices and the pre- and post-announcement responses of stock prices. The results documented show no evidence of a significant stock price response to the money supply announcements in Australia.     

Market Response to the Weekly Money Supply Announcements in the 1970s

The hypothesis that the weekly announcement of the money supply affects interest rates is examined. The announcement effect is interpreted as a policy anticipation effect. That is, an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the Federal Reserve. Estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an ARIMA model indicate that: (a) financial markets respond very quickly to the announcement; and (b) the response was largest when policymakers emphasized the importance of the monetary aggregates.     

The Effects of Inflation and Money Supply Announcements on Interest Rates

This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short-term interest rates. The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of a liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement.     

Optimal Aggregation of Money Supply Forecasts: Accuracy,Profitability and Market Efficiency

We present a general procedure for aggregating expert forecasts which exploits regularities in the structure of information within the forecaster population. Specific information structures lead to aggregation methods which adjust for additive bias, differences in individual accuracy, and correlation among forecasts. As an application, we construct composite predictions of the weekly change in the money supply from forecasts made by twenty major securities dealers, for which high positive correlation is found to be a significant characteristic. Due to instability in the information structure, our methods cannot improve on the accuracy of a simple average in this case. However, they do capture information about the correlation among money supply forecasts which is not fully impounded in short-term interest rates. Forecasts from our models accurately predict the direction of price changes for Treasury bills and Treasury bill futures after a money supply announcement.     

The UK Equity Premium: 1901–2004

Abstract:  This paper examines the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002) . Over recent decades estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by all economic sub-sectors. The empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th century, which would rationally stimulate unanticipated equity price rises during this period. Thus, I conclude that historical stock returns over recent decades have been above investors' expectations.     

Relative price variability: Evidence from supply and demand events

Previous studies of relative price variability assume that all supply changes are unanticipated or that supply elasticities are equal across markets. In this paper, we extend these models by relaxing these restrictive assumptions. Our resulting theoretical expression for relative price dispersion reveals an independent role for unanticipated and anticipated supply events. Subjecting our model to empirical testing, we find that this dichotomy of supply shocks is not rejected by the data for the period 1970–1981.     

Money and stock prices: Market efficiency and the lag in effect of monetary policy

This paper examines stock market efficiency with respect to money supply data by testing (1) regression models of stock returns on monetary variables and (2) trading rules based on money supply data. The evidence indicates no meaningful lag in the effect of monetary policy on the stock market and that no profitable security trading rules using past values of the money supply exist. Therefore this evidence is consistent with the efficient market model. Current security returns incorporate all information contained in past money supply data and, in addition, appear to anticipate future changes in the money supply. A number of previous studies have concluded that lags exist and can be used in profitable trading rules. Analysis of these studies demonstrates that for a variety of reasons the evidence in these past studies does not sustain such conclusions.     

中国货币供应量与股票市场价格关系的实证分析

股票市场作为货币政策传导的渠道,一方面通过货币供应量影响股票市场价格,另一方面股票市场价格的变动反馈到投资、消费等领域,从而影响宏观经济以实现货币政策的目标。本文对我国货币供应量与股票市场价格关系进行了实证检验,分析检验结果后认为我国各层次的货币供应量与股票市场价格存在长期的协整关系,其中股票市场价格处于因方地位,货币供应量处于果方地位。本文的实证结论在一定程度上反映了目前我国股票市场的货币政策传导效率不高,还没有发挥其应有的作用,这与我国股票市场自身缺陷有很大关系。     

宏观经济变量对股票价格的影响研究

股票价格不仅仅受其内在价值的影响,还和宏观经济因素有密切的关系.运用向量自回归方法,就宏观经济对股票价格的影响进行实证分析.研究结果表明,股票价格指数的短期波动受通货膨胀率、利率、储蓄的短期变化的影响;但是中国股票市场的走势与实体经济发展也存在背离,工业增加值与货币供给量的变化对股票价格指数的影响较小.     

Predicting the money multiplier: A case study for the U.S. and the Netherlands

A Box-Jenkins model has been developed to predict the U.S. money multiplier. The forecasts are approximately 30% more accurate than those produced by the regression methods which Burger and others have used in recent work. Similar models are then applied to three different money multipliers for the Netherlands, taken from Korteweg's reformulation of the Brunner-Meltzer money supply scheme for this open economy. The results suggest that if the Dutch Central Bank invested more resources in the collection of data from the banks, then predictions could be made sufficiently accurate for use in the control of the money stock.     

VARIANCE,RETURN, AND HIGH-LOW PRICE SPREADS

We report three new findings that rely upon the high-low price range as an estimate of stock return variance. The predictability of variance is associated with persistence in high prices and with correlated shocks to high and low prices. Excess stock returns are positively related to anticipated variance and inversely related to unanticipated variance. Lagged squared residuals in GARCH(1,1) models have no incremental explanatory power in the presence of forecasts of conditional volatility generated from high-low price spread models.     

Decimal Pricing and Information-Based Trading: Tick Size and Informational Efficiency of Asset Price

Abstract:  In this study we analyze the effect of tick size on information-based trading. Although prior studies provide extensive evidence on the effect of tick size on market quality measures such as spreads, depths, and return volatility, there is little evidence as to the effect of tick size on the informational efficiency of asset price. Our results indicate that the probability of information-based trading during the post-decimal period is significantly greater than the corresponding figure during the pre-decimal period. We also show that the increase in information-based trading after decimalization cannot be attributed to concurrent changes in stock attributes. We interpret our findings as evidence that the smaller tick size under penny pricing encourages information-based trading and thereby raises the informational efficiency of asset price.     

MONEY SUPPLY ANNOUNCEMENTS AND INTEREST SENSITIVE STOCKS

Much of the money announcement literature provides evidence that there is a significant response of nominal interest rates to unexpected changes in the money stock, especially in the October 1979-October 1982 period. These money announcements provide a proxy for unexpected interest rate changes which can be used in a novel test for the interest sensitivity of stocks. Using the response of disaggregated stock price data to money announcements, we reach two major conclusions. First, that the interest rate response observed in the money announcement literature was predominantly a change in real rates. Second, an unusual group of stocks are excessively sensitive to these real rate changes and many groups of stocks that might logically have been expected to be sensitive are not.     

Stock price effects of climate activism: Evidence from the first Global Climate Strike

The first Global Climate Strike on March 15, 2019, represented a historical turning point in climate activism. We investigate the cross-section of stock price reactions to this event for a large sample of European firms. The strike's unanticipated success caused a decrease in the stock prices of carbon-intensive firms. The effect appears to be driven by the increased public attention to climate activism. Furthermore, after the first Global Climate Strike financial analysts downgraded their longer-term earnings forecasts on carbon-intensive firms.     

Cointegration and causality between macroeconomic variables and stock market returns

The purpose of this study is to investigate whether current economic activities in Korea can explain stock market returns by using a cointegration test and a Granger causality test from a vector error correction model. This study finds that the Korean stock market reflects macroeconomic variables on stock price indices. The cointegration test and the vector error correction model illustrate that stock price indices are cointegrated with a set of macroeconomic variables—that is, the production index, exchange rate, trade balance, and money supply—which provides a direct long-run equilibrium relation with each stock price index. However, the stock price indices are not a leading indicator for economic variables, which is inconsistent with the previous findings that the stock market rationally signals changes in real activities.     

A quarterly model of unanticipated monetary growth,output and the price level in the U.K. 1963–1978

This paper develops and estimates using quarterly data from 1963 to 1978 a three-equation model of the U.K. economy, in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply. Expectations of monetary growth are assumed to be Muth-rational. The model was estimated using efficient procedures and tests of the over-identifying restrictions were favourable to the model specification. In particular, anticipated monetary growth was found to have no significant effect on output.     

Monetary rules and commodity money schemes under uncertainty

The paper sets out a simple monetary model and uses it to compare alternative monetary systems. Money may be either fiat or gold. Both gold supply and velocity are uncertain. Asset demands are derived from expected utility maximization. I demonstrate the basic argument against a commodity money — that it wastes resources, show why the optimal growth rate of money may be zero, and compare the behavior of the economy under constant money stock, constant price level, and constant gold price rules. Expected utility is typically highest under the constant price level rule.     

The effect of monetary policy on real estate price growth in China

Using quarterly data from 1998:Q1 to 2009:Q4 and monthly data from July 2005 to February 2010, this paper examines the impact of key monetary policy variables, including long-term benchmark bank loan rate, money supply growth, and mortgage credit policy indicator, on the real estate price growth dynamics in China. Empirical results consistently demonstrate that expansionary monetary policy tends to accelerate the subsequent home price growth, while restrictive monetary policy tends to decelerate the subsequent home price growth. These results suggest that Chinese monetary policy actions are the key driving forces behind the change of real estate price growth in China. We also show that hot money flow does not have a significant impact on the change of home price growth after controlling for the money supply growth. Finally, a bullish stock market tends to accelerate subsequent home price growth.     

The effect of monetary policy on real estate price growth in China

Using quarterly data from 1998:Q1 to 2009:Q4 and monthly data from July 2005 to February 2010, this paper examines the impact of key monetary policy variables, including long-term benchmark bank loan rate, money supply growth, and mortgage credit policy indicator, on the real estate price growth dynamics in China. Empirical results consistently demonstrate that expansionary monetary policy tends to accelerate the subsequent home price growth, while restrictive monetary policy tends to decelerate the subsequent home price growth. These results suggest that Chinese monetary policy actions are the key driving forces behind the change of real estate price growth in China. We also show that hot money flow does not have a significant impact on the change of home price growth after controlling for the money supply growth. Finally, a bullish stock market tends to accelerate subsequent home price growth.