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Monetary policy and stock prices in small open economies: Empirical evidence for the new EU member states


  • Pirovano, Mara


This study presents evidence on the effect of domestic and Euro Area monetary policy on stock prices in four new EU member states of Central Europe and the main determinants of stock price volatility, estimating structural vector autoregressive models identified with short-run restrictions. We find that stock prices in the considered new EU member states are more sensitive to changes in the Euro Area interest rate than to the domestic one. Moreover, the bulk of stock price volatility in these countries is due to shocks related to exchange rate and Euro Area monetary policy. Overall, we find that local stock markets are more sensitive to external shocks than to domestic ones.

Suggested Citation

  • Pirovano, Mara, 2012. "Monetary policy and stock prices in small open economies: Empirical evidence for the new EU member states," Economic Systems, Elsevier, vol. 36(3), pages 372-390.
  • Handle: RePEc:eee:ecosys:v:36:y:2012:i:3:p:372-390
    DOI: 10.1016/j.ecosys.2012.06.001

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    More about this item


    Monetary policy shocks; Stock prices; European integration;

    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
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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