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Monetary Policy Spillovers and Inter-Market Dynamics Perspective of Preferred Habitat Model

Author

Listed:
  • Abdul Wahid

    (NUML School of Business, National University of Modern Languages, Islamabad 44000, Pakistan)

  • Oskar Kowalewski

    (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, 59000 Lille, France
    Institute of Economics, Polish Academy of Sciences, 00-330 Warsaw, Poland)

Abstract

This study advances the understanding of the Preferred Habitat Model’s capacity to shed light on the inter-market transfer of mean returns and the diffusion of price volatility in Pakistani investment markets. It examines the extent to which returns in one market exert a systematic influence on returns across others under the potential sway of interest rate policy shifts, USD exchange rate volatility, and domestic inflation trends. Employing a methodological arsenal that includes the GARCH process, enhanced by Dynamic Conditional Correlations (DCC), as well as the Markov Switching Model, this research assesses the propagation of mean returns and volatility across markets. The analysis uncovers significant linkages between monetary policy and stock market indices, underscoring the profound impact of monetary policy on cross-market performance transmission. These insights are pivotal for regulators overseeing the nuanced interaction between monetary policy and market performance. They are crucial for local and international investors interested in developing economies, especially in Pakistan’s markets.

Suggested Citation

  • Abdul Wahid & Oskar Kowalewski, 2024. "Monetary Policy Spillovers and Inter-Market Dynamics Perspective of Preferred Habitat Model," Economies, MDPI, vol. 12(5), pages 1-17, April.
  • Handle: RePEc:gam:jecomi:v:12:y:2024:i:5:p:98-:d:1382171
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