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The Influence of Domestic and International Interest Rates on the ISEQ

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  • Bredin, Don

    (University College Dublin)

  • Gavin, Caroline

    (Central Bank and Financial Services Authority of Ireland)

  • O'Reilly, Gerard

    (Central Bank and Financial Services Authority of Ireland)

Abstract

We investigate the influence of international and domestic monetary policy shocks on the Irish stock market. Specifically, we analyse the impact of (un)expected changes in domestic, US, UK and German / euro area policy rates on the ISEQ between 1988 to 2002 in an event type study. Our decomposition of (un)expected changes in policy rates are based on futures markets and is akin to Kuttner (2001). In the absence of an Irish interest rate futures market, we use a more indirect method by appealing to the expectations theory of the term structure of interest rates. Overall, our results suggest that, with the exception of the US, unanticipated changes in domestic and international interest rates appear to have little significant influence on the Irish stock market.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 9/RT/03.

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Length: 21 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:cbi:wpaper:9/rt/03

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  1. William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers, Federal Reserve Bank of St. Louis 2000-010, Federal Reserve Bank of St. Louis.
  2. Willem Thorbecke, 1995. "On Stock Market Returns and Monetary Policy," Economics Working Paper Archive, Levy Economics Institute wp_139, Levy Economics Institute.
  3. Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," NBER Working Papers 10402, National Bureau of Economic Research, Inc.
  4. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(3), pages 377-406, June.
  5. Keith Cuthbertson & Don Bredin, 2000. "The Expectations Hypothesis of the Term Structure - The Case of Ireland," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 31(3), pages 267-281.
  6. Daniel L. Thornton, 1996. "Does the Fed's new policy of immediate disclosure affect the market?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 77-88.
  7. Joe Lange & Brian Sack & William Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-24, Board of Governors of the Federal Reserve System (U.S.).
  8. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(8), pages 1553-1575, November.
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  10. Sellin, Peter, 2001. " Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 15(4), pages 491-541, September.
  11. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 25, pages 201-212, April.
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  15. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 96-05, Federal Reserve Bank of San Francisco.
  16. Pearce, Douglas K & Roley, V Vance, 1983. " The Reaction of Stock Prices to Unanticipated Changes in Money: A Note," Journal of Finance, American Finance Association, American Finance Association, vol. 38(4), pages 1323-33, September.
  17. Mark J. Flannery & Aris A. Protopapadakis, 2002. "Macroeconomic Factors Do Influence Aggregate Stock Returns," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(3), pages 751-782.
  18. Antulio N. Bomfim & Vincent R. Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-14, Board of Governors of the Federal Reserve System (U.S.).
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  20. J. Benson Durham, 2001. "The effect of monetary policy on monthly and quarterly stock market returns: cross-country evidence and sensitivity analyses," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-42, Board of Governors of the Federal Reserve System (U.S.).
  21. Conover, C. Mitchell & Jensen, Gerald R. & Johnson, Robert R., 1999. "Monetary environments and international stock returns," Journal of Banking & Finance, Elsevier, Elsevier, vol. 23(9), pages 1357-1381, September.
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Cited by:
  1. Massimo Guidolin & Stuart Hyde, 2007. "What tames the Celtic tiger? portfolio implications from a multivariate Markov switching model," Working Papers, Federal Reserve Bank of St. Louis 2006-029, Federal Reserve Bank of St. Louis.
  2. Hussain, Syed Mujahid, 2011. "Simultaneous monetary policy announcements and international stock markets response: An intraday analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 752-764, March.
  3. Bredin, Don & Gavin, Caroline & O Reilly, Gerard, 2004. "US Monetary Announcements and Irish Stockmarket Volatility," Research Technical Papers 10/RT/04, Central Bank of Ireland.
  4. Kwamie Dunbar, 2008. "The Impact of the FOMC's Monetary Policy Actions on the growth of Credit Risk: the Monetary Policy - Liquidity Paradox," Working papers, University of Connecticut, Department of Economics 2008-05, University of Connecticut, Department of Economics.

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