ABSTRACT
The theoretical arguments presented by Brunnermeier to explain why the stock market might exhibit "technical" behavior— that is, behavior that follows from imperfections in the market-making process itself—rely on periods of high volatility. The converse case is equally familiar and is especially well known to the Federal Reserve, which ostensibly uses its monetary levers to make the stock market more attractive to savers: they simply make the alternative of cash less attractive and let nature take its course. Reversing the scenario, if the Federal Reserve steps in to lift the stock market by lowering short-term rates, the benefit of their policy action has essentially disappeared after seven months. Life would be easier in many ways if history was not so varied; but that is a fond wish, and the more inconsistent history seems to be—the more it is prone to long runs drawn from different dynamic regimes—the more important it is to have a wide and varied experience.
