Monetary policy and its impact on stock market liquidity: Evidence from the euro zone
AbstractThe recent financial crisis has been characterized by unprecedented monetary policy interventions of central banks with the intention to stabilize financial markets and the real economy. This paper sheds light on the actual impact of monetary policy on stock liquidity and thereby addresses its role as a determinant of commonality in liquidity. To capture effects both at the micro and macro level of stock markets, we apply panel estimations and vector autoregressive models. Our results suggest that an expansionary monetary policy of the European Central Bank leads to an increase of stock market liquidity in the German, French and Italian markets. These findings are robust for seven proxies of liquidity and two measures of monetary policy.
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Bibliographic InfoPaper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2011-06.
Date of creation: Feb 2011
Date of revision:
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Stock liquidity; monetary policy; euro zone;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-CBA-2011-02-12 (Central Banking)
- NEP-EEC-2011-02-12 (European Economics)
- NEP-FMK-2011-02-12 (Financial Markets)
- NEP-MAC-2011-02-12 (Macroeconomics)
- NEP-MON-2011-02-12 (Monetary Economics)
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