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Recent Characteristics of Long-Term Interest Rates and Stock Prices in the United States and Europe: with a Focus on the Effects of Increased Attention to Inflation Indicators

September 12, 2023
TSUCHIYA Akitaka, SAKURA Kenichi
Financial Markets Department

Since last year, U.S. and European financial markets have experienced significant volatility in long-term interest rates and stock prices as market participants have been paying more attention to developments in inflation and monetary policy. In this paper, we use a simple sign-restricted VAR to analyze how changes in market participants' views on the economic outlook and monetary policy have affected long-term interest rates and stock prices, particularly in the United States. First, while an improvement in the economic outlook in the United States, due to an easing of the impact of COVID-19 and other factors, has pushed up U.S. stock prices, a tightening of monetary policy since the beginning of last year has pushed down U.S. stock prices. In addition, as inflation has become a market theme since last year, we found that fluctuations in interest rates and stock prices have widened at times when economic and price indicators, especially the CPI, were released. Moreover, the recent release of the U.S. CPI has affected the European markets in some cases, suggesting that changes in market participants' views have easily propagated between the United States and Europe.


The Bank of Japan Review Series is published by the Bank to explain recent economic and financial topics for a wide range of readers. This report, 2023-E-6, is a translation of the Japanese original, 2023-J-8, published in August 2023. Views expressed are those of the authors and do not necessarily reflect those of the Bank. If you have any comments or questions, please contact Financial Markets Department (E-mail :