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Dissecting long-run and short-run causalities between monetary policy and stock prices

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  • Ansgar Belke

    (University of Duisburg-Essen)

  • Marcel Wiedmann

    (Hella GmbH)

Abstract

We adopt a Cointegrated Vector-Autoregressive (CVAR) model to analyze the long-run behavior and short-run dynamics of stock markets across five developed and three emerging economies. Our main aim is to check whether liquidity conditions play an important role for stock market developments. As an innovation, liquidity conditions enter the analysis from three angles: in the form of a broad monetary aggregate, the interbank overnight rate and net capital flows which represent the share of global liquidity that arrives in the respective country. A second objective is to understand whether central banks are able to influence the stock market.

Suggested Citation

  • Ansgar Belke & Marcel Wiedmann, 2018. "Dissecting long-run and short-run causalities between monetary policy and stock prices," International Economics and Economic Policy, Springer, vol. 15(4), pages 761-786, October.
    • Handle: RePEc:kap:iecepo:v:15:y:2018:i:4:d:10.1007_s10368-018-0413-y
    DOI: 10.1007/s10368-018-0413-y
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    More about this item

    Keywords

    Asset prices; CVAR; Central banks; Monetary policy; VECM;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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