Oil, Equities, and the Zero Lower Bound
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Deepa D. Datta
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Benjamin K. Johannsen
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Hannah Kwon
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Robert J. Vigfusson
- American Economic Journal: Macroeconomics (Forthcoming)
Abstract
From 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.
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