The US Monetary Base and Major World Equity Markets: An Empirical Investigation

Journal of Financial Intermediation, 2012

This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy.

Ramanujan International Journal of Business and Research

In this paper, we investigate the relationship between monetary policy and stock prices across advanced and emerging economies from January 1999 to December 2017. We also examine the impact of global monetary policy on the sample stock markets. Using the Structural Cointegrated Vector-Autoregressive model, we explore long-run equilibrium relationship and short-run dynamics of monetary policy and stock markets before and after the global financial crisis. Our results demonstrate that domestic policy rate and stock prices are often not tied together in long-term equilibrium relationships for a majority of the economies. Cross-sectional heterogeneity is observed as the relationship differs in terms of sign, magnitude and adjustment dynamics. Further, US monetary conditions are found to play an important role in influencing global output or liquidity conditions. Short-run dynamics reveal a positive impact of expansionary monetary policy shock on equity prices in those economies where transmission mechanism of monetary policy is weak. Further, we find limited response of central banks to domestic equity price shocks. The influence of US monetary policy shocks in driving equity prices is also found to be insignificant for a majority of the economies.

2006

This paper investigates the impact of monetary policy on stock returns in thirteen OECD countries over the period 1972-2002. Our results indicate that monetary policy shifts significantly affect stock returns, thereby supporting the notion of monetary policy transmission via the stock market. Our contribution with respect to previous work is threefold. First, we show that our findings are robust to various alternative measures of stock returns. Second, our inferences are adjusted for the non-normality exhibited by the stock returns data. Finally, we take into account the increasing co-movement among international stock markets. The sensitivity analysis indicates that the results remain largely unchanged.

This paper analyses the relationship between monetary policy and the stock market with the aim of gaining new insights into the transmission mechanism of monetary policy. The empirical findings shed light on the importance of stock prices for money demand and therefore provide useful information to monetary authorities deciding on policy actions. A technique developed by Wickens and Motto (2001) for identifying shocks by estimating a VECM for the endogenous variables is employed. The reported evidence suggests that stock markets play a significant role in the money demand function.

11th GLOBAL CONFERENCE ON BUSINESS AND SOCIAL SCIENCES, 2020

This study examines the impact of monetary and fiscal policies on the stock market in the United States (US), were used. By employing the method of Autoregressive Distributed Lags (ARDL) developed by Pesaran et al. (2001). Annual data from the Federal Reserve, World Bank, and International Monetary Fund, from 1986 to 2017 pertaining to the American economy, the results show that both policies play a significant role in the stock market. We find a significant positive effect of real Gross Domestic Product and the interest rate on the US stock market in the long run and significant negative relationship effect of Consumer Price Index (CPI) and broad money on the US stock market both in the short run and long run. On the other hand, this study only could support the significant positive impact of tax revenue and significant negative impact of real effective exchange rate on the US stock market in the short run while in the long run are insignificant. Keywords: ARDL, monetary policy, fi...

This paper investigates the impact of monetary policy on stock returns in thirteen OECD countries over the period 1972-2002. Our results indicate that monetary policy shifts significantly affect stock returns, thereby supporting the notion of monetary policy transmission via the stock market. Our contribution with respect to previous work is threefold. First, we show that our findings are robust to various alternative measures of stock returns. Second, our inferences are adjusted for the non-normality exhibited by the stock returns data. Finally, we take into account the increasing co-movement among international stock markets. The sensitivity analysis indicates that the results remain largely unchanged. JEL classifications: E44; E52; E60

2013

A Structural VAR model is employed to investigate the effects of monetary and fiscal policy shocks on stock market performance in Germany, UK and the US. A significant number of past studies have concentrated their attention on the relationship between monetary policy and stock market performance, yet only few on the effects of fiscal policy on stock markets. Even more we know little, if any, on the effects of fiscal and monetary policy on stock market performance when the two policies interact. This study aims to fill this void. Our results show that both fiscal and monetary policies influence the stock market, via either direct or indirect channels. More importantly, we find evidence that the interaction between the two policies is very important in explaining stock market developments. Thus, investors and analysts in their effort to understand the relationship between macroeconomic policies and stock market performance should consider fiscal and monetary in tandem rather than in isolation. JEL: C32, G15, E44, E52, E62, H50

2010

This paper empirically investigates the following three questions: (i) Do stock returns respond to monetary policy shocks? (ii) Do stock returns alter the transmission mechanism of monetary policy? and (iii) Does monetary policy systematically react to stock returns? Existing research based on event studies and Structural Vector Auto-Regressions (SVAR) documents that stock returns increase significantly following an unanticipated monetary policy

2001

This note examines the impact of interest rate and money shocks on Euro Area and U.S. financial markets. More specifically, a dynamic Gordon model is developed for stock and bond returns, which allows for a decomposition in fundamental factors. It is found that the impact of official interest rate shocks on financial markets is stronger and more significant than that

2019

This paper examines the effects of unconventional monetary policies (UMPs) by the Bank of Japan (BOJ) and the Federal Reserve (Fed) on the financial markets, taking international spillovers and a possible regime change into account. To this end, we apply the smooth-transition global VAR model to a set of major financial variables for 10 countries and one Euro zone. Our results suggest that the BOJ and the Fed's expansionary UMPs have had significant positive effects on domestic financial markets, particularly in more recent years. Our results also indicate that the BOJ's UMPs have rather limited effects on international financial markets and that the effect of the Fed's UMPs is approximately ten times larger.