Advanced Search
MyIDEAS: Login

Did the Bundesbank React to Stock Price Movements?

Contents:

Author Info

  • Siklos, Pierre L.
  • Bohl, Martin T.
  • Werner, Thomas

Abstract

In this paper, we investigate the relationship between stock returns and short-term interest rates. Identification of the stock return-interest rate relation is solved by using a new technique that relies on the heteroskedasticity of shocks to stock market returns. We suggest some improvements to the identification technique and its justification, as well as providing some new findings. In particular, we ask whether the Bundesbank, prior to the European Central Bank taking responsibility for monetary policy in 1999, reacted systematically to stock price movements. In contrast to the results for the US, our empirical findings for the 1985 - 1998 period show a positive, but statistically insignificant, parameter for the relationship between German stock returns and short-term interest rates at the daily frequency. The same result is found at the monthly frequency. Nevertheless, the confidence bands are wide enough that we cannot entirely exclude the possibility of a reaction at lower frequencies. The results are extremely robust to alternative methods used to identify changes in heteroskedasticity. The evidence is, therefore, inconsistent with the hypothesis of a systematic reaction of the Bundesbank to every wiggle in German stock prices. Both the historical and institutional evidence are supportive of this conclusion. -- In diesem Diskussionspapier untersuchen wir den Zusammenhang zwischen Aktienkursveränderungen und Veränderungen der kurzfristigen Zinssätze. Die ökonometrische Identifikation dieses Zusammenhangs erfolgt mit Hilfe eines neuen Verfahrens, das die Heteroskedastie von Aktienkursveränderungen ausnutzt. Wir schlagen einige Verbesserungen und Rechtfertigungen zu diesem Verfahren vor und liefern neue empirische Befunde. Im Vordergrund der Betrachtungen steht die Frage, ob die Bundesbank vor der Übernahme der geldpolitischen Entscheidungen durch die Europäische Zentralbank im Jahre 1999 systematisch auf Veränderungen der Aktienkurse reagiert hat. Im Unterschied zu den verfügbaren Ergebnissen für die Vereinigten Staaten von Amerika, finden wir auf Basis von Tagesdaten zwar einen positiven, aber statistisch nicht signifikanten Parameter für die Reaktion des kurzfristigen Zinssatzes auf Änderungen des Aktienkurses. Auf der Grundlage von Monatsdaten ist der Parameter ebenfalls positiv und statistisch insignifikant. Die Konfidenzintervalle sind aber sehr breit, so dass eine Reaktion auf der niedrigeren Frequenz nicht völlig ausgeschlossen werden kann. Die empirischen Resultate sind sehr robust gegenüber unterschiedlichen Modellspezifikationen. Die empirische Evidenz widerspricht somit der These einer systematischen Reaktion der Bundesbank auf jede Bewegung am Aktienmarkt, was durch die historischen und institutionellen Gegebenheiten gestützt wird.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/19602/1/200314dkp.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2003,14.

as in new window
Length:
Date of creation: 2003
Date of revision:
Handle: RePEc:zbw:bubdp1:4211

Contact details of provider:
Postal: Postfach 10 06 02, 60006 Frankfurt
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Email:
Web page: http://www.bundesbank.de/
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Franklin Allen & Douglas Gale, 2000. "Asset Price Bubbles and Monetary Policy," Center for Financial Institutions Working Papers 01-26, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June.
  3. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
  4. Jon Faust & John H. Rogers & Jonathan H. Wright, 2001. "An empirical comparison of Bundesbank and ECB monetary policy rules," International Finance Discussion Papers 705, Board of Governors of the Federal Reserve System (U.S.).
  5. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
  6. Smets, Frank, 1997. "Financial Asset Prices and Monetary Policy: Theory and Evidence," CEPR Discussion Papers 1751, C.E.P.R. Discussion Papers.
  7. Charles Goodhart & Boris Hofmann, 2001. "Asset prices, financial conditions and the transmission of monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  8. Siklos,Pierre L., 2006. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, number 9780521034494, October.
  9. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  10. Thomas F. Cosimano & Connel Fullenkamp & Ralph Chami, 1999. "The Stock Market Channel of Monetary Policy," IMF Working Papers 99/22, International Monetary Fund.
  11. Frederic S. Mishkin, 2001. "The Transmission Mechanism and the Role of Asset Prices in Monetary Policy," NBER Working Papers 8617, National Bureau of Economic Research, Inc.
  12. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  13. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
  14. James B. Bullard & Eric Schaling, 2002. "Why the Fed should ignore the stock market," Review, Federal Reserve Bank of St. Louis, issue Mar., pages 35-42.
  15. Roberto Rigobon & Brian Sack, 2001. "Measuring the reaction of monetary policy to the stock market," Finance and Economics Discussion Series 2001-14, Board of Governors of the Federal Reserve System (U.S.).
  16. Siklos, Pierre L, 2000. "Is the MCI a Useful Signal of Monetary Policy Conditions? An Empirical Investigation," International Finance, Wiley Blackwell, vol. 3(3), pages 413-37, November.
  17. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-55, January.
  18. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
  19. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
Full references (including those not matched with items on IDEAS)

Citations

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

Cited by:
  1. Roberto Rigobon & Brian Sack, 2003. "The Effects of War Risk on U.S. Financial Markets," NBER Working Papers 9609, National Bureau of Economic Research, Inc.
  2. Ansgar Belke & Thorsten Polleit, 2005. "(How) Do Stock Market Returns React to Monetary Policy? - An ARDL Cointegration Analysis for Germany," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 253/2005, Department of Economics, University of Hohenheim, Germany.
  3. Fernando Alexandre & Pedro Bação, 2005. "Monetary policy and asset prices: the investment channel," NIPE Working Papers 3/2005, NIPE - Universidade do Minho.
  4. Ansgar Belke & Thorsten Polleit, 2006. "Monetary policy and dividend growth in Germany: long-run structural modelling versus bounds testing approach," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1409-1423.
  5. J. Rodrigo Fuentes S. & Marcelo Ochoa C., 2007. "Política Monetaria, Precios de Activos y Estabilidad Financiera: Una Revisión de la Literatura," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(3), pages 115-127, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp1:4211. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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