Understanding the Stock Market's Response to Monetary Policy Shocks

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Understanding the Stock Market's Response to Monetary Policy Shocks

Author Info

Johann Scharler () (Oesterreichische Nationalbank, Economic Analysis Division)

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Johann Scharler

Abstract

This paper explores whether a limited participation model of the monetary transmission mechanism can account for the observed response of stock market returns to monetary policy shocks. It is found that the model generates responses that broadly match the empirical counterparts, although the magnitudes are somewhat too small. Moreover, the results suggest that the increased exposure of bank-dependent firms to liquidity shocks cannot fully account for the heterogenous responses of returns that are observed across firms.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 93.

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Length: 32 pages
Date of creation: 29 Dec 2004
Date of revision:
Handle: RePEc:onb:oenbwp:93

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Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
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Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 - Financial Economics - - General Financial Markets

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-02-13 (All new papers)
NEP-FMK-2005-02-13 (Financial Markets)
NEP-MAC-2005-02-13 (Macroeconomics)
NEP-MON-2005-02-13 (Monetary Economics)
NEP-SEA-2005-02-13 (South East Asia)

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