IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/1999-022.html
   My bibliography  Save this paper

The Stock Market Channel of Monetary Policy

Author

Listed:
  • Mr. Thomas F. Cosimano
  • Connel Fullenkamp
  • Mr. Ralph Chami

Abstract

This paper argues that the stock market is an important channel of monetary policy. Monetary policy affects real economic activity because inflation levies a property tax on stocks in addition to an income tax on dividend payments. Inflation thus taxes stocks more heavily than it does bonds. Households alter their required rate of return as inflation changes, and firms adjust production in order to satisfy their shareholders’ demands. As the stock market channel grows in importance, the appropriate intermediate target for the central bank is the price level, with price stability being the ultimate goal.

Suggested Citation

  • Mr. Thomas F. Cosimano & Connel Fullenkamp & Mr. Ralph Chami, 1999. "The Stock Market Channel of Monetary Policy," IMF Working Papers 1999/022, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/022
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=2887
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bayangos, V.B., 2000. "real monetary conditions index for the Philippines : is it useful?," ISS Working Papers - General Series 19054, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Bohl, Martin T. & Siklos, Pierre L. & Werner, Thomas, 2007. "Do central banks react to the stock market? The case of the Bundesbank," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 719-733, March.
    3. Laopodis, Nikiforos T., 2013. "Monetary policy and stock market dynamics across monetary regimes," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 381-406.
    4. Chang, Kuang-Liang & Chen, Nan-Kuang & Leung, Charles Ka Yui, 2012. "The dynamics of housing returns in Singapore: How important are the international transmission mechanisms?," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 516-530.
    5. Maged Shawky Sourial, 2002. "The Future of the Stock Market Channel In Egypt," Finance 0204002, University Library of Munich, Germany.
    6. Stefano Neri, 2004. "Monetary policy and stock prices: theory and evidence," Temi di discussione (Economic working papers) 513, Bank of Italy, Economic Research and International Relations Area.
    7. Yongseung Han & Myeong Hwan Kim, 2023. "Monetary shocks on the Korean stock index: structural VAR analysis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 85-102, March.
    8. Suhaibu, Iddrisu & Harvey, Simon K. & Amidu, Mohammed, 2017. "The impact of monetary policy on stock market performance: Evidence from twelve (12) African countries," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1372-1382.
    9. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    10. Joseph Baabu Odindi & Peterson Obara Magutu & Richard Bitange Nyaoga, 2018. "Best-Value Procurement Practices and Financial Performance of Kenyan Commercial State Corporations," Noble International Journal of Economics and Financial Research, Noble Academic Publsiher, vol. 3(10), pages 106-123, October.
    11. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    12. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.
    13. Siklos, Pierre L. & Bohl, Martin T. & Werner, Thomas, 2003. "Did the Bundesbank React to Stock Price Movements?," Discussion Paper Series 1: Economic Studies 2003,14, Deutsche Bundesbank.
    14. Cohen, Lior, 2023. "The effects of the BoJ's ETF purchases on equities and corporate investment," Economic Modelling, Elsevier, vol. 129(C).
    15. Asmy, Mohamed & Rohilina, Wisam & Hassama, Aris & Fouad, Md., 2009. "Effects of Macroeconomic Variables on Stock Prices in Malaysia: An Approach of Error Correction Model," MPRA Paper 20970, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:1999/022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.