THE IMPACT OF THE MONEY SUPPLY ON STOCK PRICES AND STOCK BUBBLES

Abstract

This article is focused on the effect and implication of a change in the money supply for the US capital market. This market was chosen according to its part on the global market capitalization. Namely it is the Dow Jones Industrial Average (DJIA), which was chosen according to its long history, global sense and stabile construction. The money supply will be measured by the wider aggregate M2 and aggregate MZM (money with zero maturity). The goal of this paper is to detect, if the money supply influenced the stock indices in the years 1967 -2011, if the impact of both money aggregates is nearly the same, and how the money supply influenced the bubble creation.