The Impact of Monetary Policy on Financial Markets in Small Open Economies: More or Less Effective During the Global Financial Crisis?
AbstractThis paper estimates the impact of monetary policy on exchange rates and stock markets for eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia and Thailand. On average across these countries, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 1% fall in stock market indices. The effect on exchange rates is notably weaker in the non-Organization for Economic Cooperation and Development (OECD) countries with a managed float. For the OECD countries, there is no robust evidence of a change in the effect of policy during the global financial crisis. For the non-OECD countries, there is some evidence of a stronger effect of policy on stock markets during the crisis, although further research is needed to investigate whether this is a result of measurement issues.
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Bibliographic InfoPaper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 72.
Length: 56 pages
Date of creation: 01 Jan 2011
Date of revision:
Monetary policy effectiveness; exchange rate; stock prices; crisis; Asian economies;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-CBA-2011-02-05 (Central Banking)
- NEP-IFN-2011-02-05 (International Finance)
- NEP-MAC-2011-02-05 (Macroeconomics)
- NEP-MON-2011-02-05 (Monetary Economics)
- NEP-SEA-2011-02-05 (South East Asia)
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