Stock price, because it is a forward-looking variable, forecasts economic activities. An unexpected increase in stock price reflects that (i) future dividend growth is higher and/or (ii) future discount rates are lower than previously anticipated; therefore, the increase predicts higher output and...

This article examines the association between stock market booms and monetary policy in the United States and nine other developed countries during the 20th century. The authors find, as was true of the U.S. stock market boom of 1994-2000, that booms typically arose during periods of...

James B. Bullard and Eric Schaling study a simple, small dynamic economy which a policymaker is attempting to control with a Taylor-type monetary policy rule. The authors wish to understand the macroeconomic consequences of the policymaker’s decision to include the level of equity prices in...

News of enormous trade deficits began affecting asset prices in the mid-1980s. Some have suggested that trade deficit news contributed to the October 1987 stock market crash. This argument would be more compelling if the trade deficit were a source of systematic risk to asset prices, since then...