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Impact of unconventional monetary policy on stock market in selected economies during and post-COVID-19 pandemic

Author

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  • Li, Yaxing
  • Lau, Wee-Yeap
  • Ng, Kok-Haur

Abstract

This study investigates the impact and effectiveness of unconventional monetary policy (UMP) interventions, specifically central bank policy announcements and asset purchases programs, across four major advanced economies, namely the United States (US), European Union (EU), United Kingdom (UK), and Japan during and post-COVID-19 pandemic. By utilizing the EGARCH(1,1)-X-MIDAS framework, the model captures both short-run and long-run components of stock market volatility by incorporating mixed-frequency exogenous variables of policy announcement and asset purchases. Covering the period from March 2020 to December 2023, the findings reveal that policy announcements had transient or insignificant effects on volatility, especially as market participants adjusted to well-communicated policy regimes. In contrast, the impact of asset purchases varied by economy and period: the US experienced volatility-dampening effects, while the EU, UK, and Japan exhibited volatility amplification in response to sustained interventions. These effects were found to be state-dependent and time-varying, reflecting differences in institutional credibility, market expectations, and macro-financial conditions. Robustness checks using a GJR-GARCH(1,1)-X-MIDAS model confirm the consistency of results under asymmetric volatility dynamics. Overall, the study provides new empirical evidence on the conditional effectiveness of UMP, highlighting its transmission through the volatility channel rather than mean returns.

Suggested Citation

  • Li, Yaxing & Lau, Wee-Yeap & Ng, Kok-Haur, 2025. "Impact of unconventional monetary policy on stock market in selected economies during and post-COVID-19 pandemic," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2360-2381.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2360-2381
    DOI: 10.1016/j.eap.2025.08.023
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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • 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

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