Parallels with the 1920s Stock Market Boom and the Monetary Policy
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Parallels with the 1920s Stock Market Boom and the Monetary Policy
Conrad, Christian A. | Stahl, Markus
Credit and Capital Markets – Kredit und Kapital, Vol. 35 (2002), Iss. 4 : pp. 533–549
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Christian A. Conrad, Stuttgart
Markus Stahl, Stuttgart
Cited By
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Economic Systems, Markets and Politics
Financial Markets After the Financial Crisis
Conrad, Christian A.
2022
https://doi.org/10.1007/978-3-031-10366-7_7 [Citations: 0]
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Abstract
We have been able to observe a strong increase in stock market valuations in the Nineties. Milton Friedman and Barry Eichengreen compare the 1990s with the "Roaring Twenties". This paper examines the developments on the US stock market in relation to the monetary policy in the Twenties and in the Nineties, and attempts to highlight parallels.
Monetary policy reacted in the Nineties similarly to the way it did in the period of Twenties. First the Federal Reserve tried to slow down the stock market boom with successive increases in interest rates after low interest rate levels had been stimulating stock market speculation. Later it was inversed. In contrast to 1929 the American Federal Reserve Bank has reduced the interest rate several times since the beginning 2001. In relation to the length of time it is the most drastic interest rate reduction in the history of the Fed. Certain factors indicate a speculative bubble on the stock market in both decades and a strong influence of the monetary policy (JEL B 22, E 52, G 12, N 22)