The impact of stock market volatility on monetary policy Dissertation

The impact of extend grocery store volatility on financial policy - Dissertation ExampleThis section presents the results of the estimation. In table 1 we present the results of cut reverse specifications (1) and (2) using OLS and GMM instrumental variable estimation. We have utilize the S and P 500, Dow Jones as well as the FTSE 100 indices as measures of stock market prices. All three have been included to verify whether the results obtained argon robust to changes in stock market indices. For the GMM estimation, lagged values of inflation and the verbotenput gap have been used as instruments. Finally, we have incorporated a recession dummy in the 2nd specification. This dummy variable takes the value 1 for all quarters between 2007 Q3 and 2009 Q4. In table 1, the 1st column presents the results of running a simple OLS regression on equation (1). The intercept and the coefficient on inflation are coercive and significant. However, the coefficient on the output gap, althoug h quite large is not statistically significant. Thus, from the 1st column where the estimation was carried out of equation (1) we find that the interest rate responds only to the inflation. It does not respond to the output gap. Also, from the last run-in which presents the Wald test statistic which tests the hypothesis = = 0.5, we find the statistic is highly significant. So, the null hypothesis is rejected by the 1st model. In column 2, the results of estimating the OLS specification (2) are presented. The wald test statistic is 89.25 which is highly significant.... This translates into the query of whether equity price levels as measurable by indices such as the Dow Jones or the Standard and Poor 500 should be targeted explicitly by monetary policy or not. Most macroeconomists however are of the opinion that pursuing these queries is not worthy since targeting stock market prices requires identification of what the perfect prices of an asset is before the extent to which the actual price has deviated from the extreme or target price can be identified. In other words, ex-ante identification of a stock market bubble is extremely difficult. Since the fundamental price of a stock is not verifiable thus the nature of deviation of actual prices remains unverifiable as well (Shiller, 1989 Salge, 1997). Bubbles, i.e., increase of prices steadily above fundamentals can be identified ex-post. In hindsight it is clear that the Nasdaq devise or the steady rise in Japanese asset prices in the late 1980s were such bubbles. But during the respective phases these movements were not convincingly identified as anything other than reflecting fundamental price dynamics. Therefore under these difficulties of recognising stock market volatility in real time the true complexity of asking what the reaction of monetary political science should be becomes clear. One possible direction suggested in literature is to make the simplifying assumption that the monetary delegacy is aware of the presence of a bubble and realizes that the collapse of the bubble is imminent. Post-collapse prices will revert back to the fundamental levels. Then ask what the appropriate reaction of the monetary authority should be under such assumptions. (Blanchard, 2000) aspect among economists