The Impact of Financial Deregulation on the Relationship between Stock Prices and Monetary Policy

Document Type

Article

Publication Title

Quarterly Journal of Business and Economics

ISSN

0747-5535

Volume

33

Issue

3

First Page

37

Last Page

50

Publication Date

Summer 9-1-1994

Abstract

This paper examines whether aggregate stock prices fully incorporated all available information on the money supply in the United States from January 1978 to September 1990, a period that witnessed the deregulation of deposit rates and several changes in the Federal Reserve's short-run operating procedure. A Granger causality test is performed in the context of a bivariate error correction model (ECM) on the monthly data. I find that stock prices did not fully digest and reflect changes in money supply during this period. This phenomenon can be attributed partly to the existence of a relatively volatile relationship between money supply and overall economic activity engendered by financial deregulation.

Link to Full Text

Share

COinS