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Interdependence between monetary policy and asset prices in ASEAN-5 countries

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  • Juhro, Solikin M.
  • Iyke, Bernard Njindan
  • Narayan, Paresh Kumar

Abstract

In this paper, we investigate the interdependence between monetary policy and asset prices in ASEAN-5 countries. Within country-specific models and proxying asset prices by the composite stock market indices of these countries, we find strong interdependence between monetary policy and asset prices. We show that real stock prices decline as interest rates increase due to a contractionary monetary policy shock. Interest rates rise in response to an increase in real stock prices induced by a real stock price shock, although it does so a couple of months after the shock. We find the interdependence of monetary policy and asset prices to hold up within panel models. The delay in interest rate response to real stock price shocks originates from three of the ASEAN-5 countries, namely Indonesia, the Philippines, and Thailand.

Suggested Citation

  • Juhro, Solikin M. & Iyke, Bernard Njindan & Narayan, Paresh Kumar, 2021. "Interdependence between monetary policy and asset prices in ASEAN-5 countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:intfin:v:75:y:2021:i:c:s104244312100158x
    DOI: 10.1016/j.intfin.2021.101448
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    More about this item

    Keywords

    Monetary policy; Asset prices; ASEAN-5 countries;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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