Monetary policy, growth, debt, and the stock market in the United States 2000-2020: Lessons for the post-pandemic Covid-19 era

Abstract

The aim of this paper is look at the relationship between the Fed's monetary policy, the USA's debt, and the stock market over the period 2000-2020. Reaction functions to assess the effect of debt variations on the stock market, GDP, price stability and the rate of interest are elaborated. By way of hypothesis, it is argued that the main effect, associated with debt expansion, goes to the stock market as its main index is significantly elastic to public debt increments. This result is consistent with the Fed interventions to improve liquidity with a view to stabilize the financial system after both the 2007/2008 financial crisis and the economic impact of the Covid-19 pandemic.