Fiscal policy shocks and stock prices in the United States

Haroon, Mumtaz and Konstantinos, Theodoridis 2020. Fiscal policy shocks and stock prices in the United States. European Economic Review 129 , 103562. 10.1016/j.euroecorev.2020.103562

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Abstract

This paper uses structural VARs to show that the response of US stock prices to Öscal shockschanged in 1980. Over the period 1955-1979 an expansionary spending or revenue shock wasassociated with higher stock prices. After 1980 the response of stock prices to the same shockbecame negative. Using a DSGE model with a detailed Öscal sector, we show the pre-1980results may be driven by an expansion in supply after the Öscal shock. In contrast, endogenousgrowth mechanisms appear to be weaker in the post-1980 period with positive Öscal shockspushing down consumption and TFP and causing ináation and the real interest rate to rise.Key words: Fiscal policy shocks, Stock prices, VAR, FAVAR, DSGE.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Advanced Research Computing @ Cardiff (ARCCA) Business (Including Economics)
Publisher:	Elsevier
ISSN:	0014-2921
Date of First Compliant Deposit:	7 August 2020
Date of Acceptance:	7 August 2020
Last Modified:	10 Nov 2024 00:15
URI:	https://orca.cardiff.ac.uk/id/eprint/134044

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