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Monetary and Fiscal Policy Shocks on the Stock Market Performance in the United States: Evidence from the SVAR Framework

Team Members

Aref Emamian, Hanan Karimah Kiranda, Okpala, Victor

Abstract

The effectiveness of monetary and fiscal policy shocks on the stock market remains a subject of debate among researchers, central banks, and governments. Furthermore, the interaction between these two policies is of paramount importance, yet a few studies have delved into this aspect. To that end, we investigated the impact of monetary and fiscal policy shocks on the United States stock market during and before the Obama administration sourced from the Federal Reserve, World Bank, and International Monetary Fund. Using the Structural Vector Autoregression (SVAR) framework, we analyzed the dynamic relationship between fiscal and monetary policies and their impact on stock market performance. Our findings revealed significant roles of GDP and interest rate in the US stock market in the long run, while CPI and broad money exhibited negative effects in both short and long terms. Tax revenue's short-term positive impact and real effective exchange rate's short-term negative impact on the stock market were shown, offering valuable insights for investors.

Monetary and Fiscal Policy Shocks on the Stock Market Performance in the United States: Evidence from the SVAR Framework - Executive Summary Video

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