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Oil, Equities, and the Zero Lower Bound†

Oil, Equities, and the Zero Lower Bound† AbstractFrom late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resulted from the zero lower bound (ZLB) on nominal interest rates, consistent with the theoretical predictions of a model that includes the ZLB. Although the ZLB alters the economic environment in theory, supportive empirical evidence has been lacking. Our paper provides clear evidence of the ZLB altering the economic environment. (JEL E12, E32, E43, G12, G14, Q43) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Oil, Equities, and the Zero Lower Bound†

American Economic Journal: Macroeconomics , Volume 13 (2) – Apr 1, 2021

Abstract

AbstractFrom late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resulted from the zero lower bound (ZLB) on nominal interest rates, consistent with the theoretical predictions of a model that includes the ZLB. Although the ZLB alters the economic environment in theory, supportive empirical evidence has been lacking. Our paper provides clear evidence of the ZLB altering the economic environment. (JEL E12, E32, E43, G12, G14, Q43)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180488
Publisher site
See Article on Publisher Site

Abstract

AbstractFrom late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resulted from the zero lower bound (ZLB) on nominal interest rates, consistent with the theoretical predictions of a model that includes the ZLB. Although the ZLB alters the economic environment in theory, supportive empirical evidence has been lacking. Our paper provides clear evidence of the ZLB altering the economic environment. (JEL E12, E32, E43, G12, G14, Q43)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Apr 1, 2021

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