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New Macroeconomics by Apek Mulay

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CHAPTER 5

Stock Market and Macroeconomics

Traditionally, macroeconomics has not paid much attention to the behavior of the stock market. An article from Professors Stanley Fischer and Robert Merton concludes that “macro analysis should give more attention to the stock market.” After the Great Recession, more attention has indeed been paid to the stock market behavior. There are many reasons for this. One reason is that there was a stock market crash in 2008 and 2009. This was on top of a crash that occurred in 2000 and 2001, and that was on top of a crash that occurred in 1987. In comparison, during the 20th century there was only one major crash before World War II—the famous crash of 1929. The point is that with the rise of Keynesian economics, ...

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