IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Interaction between monetary policy and stock prices: a comparison between the Caribbean and the US

Listed author(s):
  • Emma M. Iglesias
  • Andre Yone Haughton

We analyse the interaction between monetary policy and stock prices in Barbados, Jamaica and Trinidad and Tobago (T&T), both individually and jointly as the Caribbean countries using structural VARs, as proposed in Bjornland and Leitemo (2009). Annual and monthly frequencies are used for Barbados while, due to data availability constraints, only annual data is employed for Jamaica and T&T. First, our results show that in Barbados, with monthly (and annual) data, a monetary policy shock that increases the Treasury bill rate by 100 basis points causes stock prices to increase by 0.038% (and fall by 0.06%), while a stock price shock that increases stock prices by 1% results in an increase in the Treasury bill rate of 30 (and 190) basis points, respectively. For Jamaica, a monetary policy shock causes stock prices to fall by 0.3%, while a stock price shock that increases stock prices by 1% results in an increase in the Treasury bill rate of 400 basis points. Likewise for T&T, a shock to monetary policy causes stock prices to fall by 0.1% and a shock leading to a 1% increase in real stock prices causes the Treasury bill to increase by 330 basis points. When we analyse the three Caribbean countries jointly, a positive 1% stock price shock causes the Treasure bill rate to increase by 700 basis points and a positive monetary policy shock cause stock price to fall by 0.027%. Therefore, our results in relation to the signs of the relationships with annual data are similar to those of the US in Bjornland and Leitemo (2009), however the magnitudes are substantially different. The effect of a monetary policy shock is greater in the US, while the effect of a stock price shock is smaller in the US than in our Caribbean economy. We argue that this reflects clear differences between the US and Caribbean economies. Caribbean countries have slower information channels, for example, by targeting the 30-day Certificate of Deposit (COD) rate instead of the overnight Treasury bill rate as in the US. This supports our results that only with annual data we find similar relationships as in the US with monthly data. Moreover, the higher economic instability in the Caribbean is clearly observed in the larger effect that a stock price increase has on interest rates versus the USA.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 23 (2013)
Issue (Month): 6 (March)
Pages: 515-534

in new window

Handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:515-534
DOI: 10.1080/09603107.2012.730131
Contact details of provider: Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:515-534. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.