Monetary policy announcements and stock reactions: An international comparison

This article investigates the impact of domestic monetary policy rate announcements on the stock markets of New Zealand, Australia, the United Kingdom and the euro area, using event-study methods to identify stock price reactions to the unanticipated/surprise component of announcements. As Australia and New Zealand did not reach the zero bound we investigate whether there is an impact from the global financial crisis on stock market reactions that can be distinguished from the asymmetric reactions to surprises that characterise the business cycle. We find that the euro area and the UK both show a financial crisis effect but behaviour in New Zealand and Australia does not change. We conduct robustness checks and explore confounding factors, especially the impact of ‘guidance’ from central banks that prepares markets for policy rate changes.