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Bank lending and the stock market's response to monetary policy shocks

Listed author(s):
  • Scharler, Johann

This paper explores whether a limited participation model modified to include features of the bank lending channel can account for the empirically observed reaction of stock market returns to monetary policy shocks. When calibrated to match characteristics of US data, the model generates responses that broadly match the empirical counterparts. The results also suggest, that the higher exposure of bank-dependent firms to liquidity shocks generates substantial heterogeneity of the responses across firms.

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File URL: http://www.sciencedirect.com/science/article/pii/S1059-0560(07)00003-2
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 17 (2008)
Issue (Month): 3 ()
Pages: 425-435

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Handle: RePEc:eee:reveco:v:17:y:2008:i:3:p:425-435
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  1. Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," NBER Working Papers 10402, National Bureau of Economic Research, Inc.
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  14. Anil Kashyap & Jeremy C. Stein, 1993. "Monetary Policy and Bank Lending," NBER Working Papers 4317, National Bureau of Economic Research, Inc.
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  16. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  17. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  18. Marshall, David A, 1992. " Inflation and Asset Returns in a Monetary Economy," Journal of Finance, American Finance Association, vol. 47(4), pages 1315-1342, September.
  19. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  20. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  21. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 377-406, June.
  22. Patelis, Alex D, 1997. " Stock Return Predictability and the Role of Monetary Policy," Journal of Finance, American Finance Association, vol. 52(5), pages 1951-1972, December.
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