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Monetary Policy Spillovers and Inter-Market Dynamics Perspective of Preferred Habitat Model

Author

Listed:
  • Abdul Wahid

    (NUML School of Business, National University of Modern Languages, Islamabad 44000, Pakistan)

  • Oskar Kowalewski

    (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, 59000 Lille, France
    Institute of Economics, Polish Academy of Sciences, 00-330 Warsaw, Poland)

Abstract

This study advances the understanding of the Preferred Habitat Model’s capacity to shed light on the inter-market transfer of mean returns and the diffusion of price volatility in Pakistani investment markets. It examines the extent to which returns in one market exert a systematic influence on returns across others under the potential sway of interest rate policy shifts, USD exchange rate volatility, and domestic inflation trends. Employing a methodological arsenal that includes the GARCH process, enhanced by Dynamic Conditional Correlations (DCC), as well as the Markov Switching Model, this research assesses the propagation of mean returns and volatility across markets. The analysis uncovers significant linkages between monetary policy and stock market indices, underscoring the profound impact of monetary policy on cross-market performance transmission. These insights are pivotal for regulators overseeing the nuanced interaction between monetary policy and market performance. They are crucial for local and international investors interested in developing economies, especially in Pakistan’s markets.

Suggested Citation

  • Abdul Wahid & Oskar Kowalewski, 2024. "Monetary Policy Spillovers and Inter-Market Dynamics Perspective of Preferred Habitat Model," Economies, MDPI, vol. 12(5), pages 1-17, April.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:5:p:98-:d:1382171
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    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
    2. Till Strohsal, 2017. "Bond yields and debt supply: new evidence through the lens of a preferred-habitat model," Quantitative Finance, Taylor & Francis Journals, vol. 17(10), pages 1509-1522, October.
    3. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 215-287.
    4. Aviral Kumar Tiwari & Samia Nasreen & Subhan Ullah & Muhammad Shahbaz, 2021. "Analysing spillover between returns and volatility series of oil across major stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2458-2490, April.
    5. Abdul Wahid & Muhammad Zubair Mumtaz, 2018. "The Paradigm Shift in the Pakistan Stock Exchange’s Financial Integration Post-FTA and CPEC," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 21-50, Jan-June.
    6. Luis M. Viceira, 2001. "Optimal Portfolio Choice for Long‐Horizon Investors with Nontradable Labor Income," Journal of Finance, American Finance Association, vol. 56(2), pages 433-470, April.
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