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Effects of Inflation-Targeting Monetary Policy on Stock Market Returns

Author

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  • Antonio Rafael Rodríguez Abraham

    (Universidad César Vallejo)

Abstract

The aim of this paper is to study the effects of monetary policy with inflation targets on Peruvian stock market returns for the period 2012-2023. Following the event study methodology, we worked with 70 observations of the reference rate and 70 observations of the S&P/Peru Gen index returns. Based on the efficient market hypothesis, the information was separated into its expected and unexpected components. Following Kuttner (2001), a proxy for the unexpected component was estimated from interbank interest rates. It is concluded that a 1% increase in the interest rate generates a 0.277% increase in market returns and vice versa, with a statistically significant positive relationship. The results suggest that the LSE is an efficient market and that the stock market does not always respond to monetary policy as established by theory Keywords: Monetary policy, inflation targeting, event study, efficient market hypothesis, stock market returns JEL Classification: E52, E58, G1, G14

Suggested Citation

  • Antonio Rafael Rodríguez Abraham, 2024. "Effects of Inflation-Targeting Monetary Policy on Stock Market Returns," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 102, pages 203-235, November.
    • Handle: RePEc:lde:journl:y:2024:i:102:p:203-235
    DOI: 10.17533/udea.le.n102a354263
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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