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Stock and Bond Market Sensitivities to Monetary Variables

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  • N. Valckx

Abstract

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 of money shocks. The Euro Area betas are larger for stocks than bonds, while the opposite is true for U.S. betas.

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File URL: http://www.dnb.nl/binaries/wo0680_tcm46-145977.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 680.

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Date of creation: 2001
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Handle: RePEc:dnb:wormem:680

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Related research

Keywords: Monetary policy shocks; dynamic Gordon model; return decomposition; betas;

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References

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  1. David Hendry & Jurgen Doornik, 2000. "Constructing Historical Euro-Zone Data," Economics Series Working Papers 4, University of Oxford, Department of Economics.
  2. repec:fth:bfdipa:13/2001 is not listed on IDEAS
  3. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
  4. Valckx, Nico, 2001. "Factors affecting asset price expectations: fundamentals and policy variables," Research Discussion Papers 13/2001, Bank of Finland.
  5. van Els, Peter J. A. & Locarno, Alberto & Morgan, Julian & Villetelle, Jean-Pierre, 2001. "Monetary policy transmission in the euro area: What do aggregate and national structural models tell us?," Working Paper Series 0094, European Central Bank.
  6. Campbell, John Y & Mei, Jianping, 1993. "Where Do Betas Come From? Asset Price Dynamics and the," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 567-92.
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