Dichotomous stock market reaction to episodes of rules and discretion in the US monetary policy

Marinescu, Ion-Iulian; Horobeț, Alexandra; Lupu, Radu

doi:10.1016/j.econmod.2017.10.009

Cited by 5 publications

(2 citation statements)

References 25 publications

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“…Against this background, the article studies the relationship between monetary policy and stock prices among international economies before and after the crisis of 2008. Though a large number of studies examine the interaction between monetary policy and stock market, a vast majority of the literature undertakes single country analysis, focusing mainly on the US and the Euro area (see, among others, Basistha & Kurov, 2008; Bernanke & Kuttner, 2005; Bjørnland & Leitemo, 2009; Bouakez et al, 2013; Fausch & Sigonius, 2018; Fawley & Neely, 2014; Haitsma et al, 2016; Jansen & Tsai, 2010; Jansen & Zervou, 2017; Kholodilin et al, 2009; Laopodis, 2013; Li et al, 2010; Marinescu et al, 2018; Pirovano, 2012; Rigobon & Sack, 2004). Attempts have been made in the literature to analyse the dynamics of monetary policy and stock market interactions across countries, yet these cross-country studies remain relatively scarce (see Abouwafia & Chambers, 2015; Belke & Beckmann, 2015; Ioannidis & Kontonikas, 2008; Saini & Sehgal, 2020; Suhaibu et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

Monetary Policy and Stock Market Interaction: International Evidence

Saini

Sehgal

2023

The Indian Economic Journal

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This article investigates monetary policy and stock market interaction across 41 developed and developing economies using GMM-Panel VAR model. The analysis is undertaken in two sub-periods—before and after the crisis of 2008 to make a comparative assessment of whether the relationship between monetary policy and stock prices altered in the aftermath of the crisis. We verify the existence of different channels of monetary transmission to stock prices. Our results point to the prevalence of discount rate channel of monetary policy in affecting stock prices after the crisis of 2008. Further, our results indicate an important role of excess liquidity in pushing stock prices upward in developed economies in the post-crisis period. In developing economies, term premia channel is the dominant channel of transmission to stock prices. Also, we find evidence of monetary authorities of developed economies responding directly to stock price movements to ensure financial stability in the post-crisis period. Central banks react primarily to inflationary pressures by tightening monetary policy both before and after the crisis in developed and developing economies. JEL Codes: C32, E44, E52, F42

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Section: Introductionmentioning

confidence: 99%

Monetary Policy and Stock Market Interaction: International Evidence

Saini

Sehgal

2023

The Indian Economic Journal

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“…Disagreement on the information of sunspots would shape investors" behavior. In the hypothesis of an efficient market, individuals are assumed as rational, and market prices capture all information (Marinescu et al 2018). It indicates no need to consider any behavioral or psychological bias.…”

Section: Provide a New Perspective To Understand The Impact Of Sunspotsmentioning

confidence: 99%