Financial integration, monetary policy and stock prices: Empirical evidence for the new EU member states
We provide empirical evidence on the interaction between monetary policy and stock prices in 4 new EU member states of Central and Eastern Europe by estimating a small open economy macroeconometric model (SVAR) identified by means of short-run restrictions. Our modeling choices reflect the increasing integration between the NMS and the Euro Area. Our contributions are twofold. We analyze the monetary transmission mechanism through stock prices in the NMS and we determine the extent to which financial markets in the aforementioned countries are sensitive to euro area monetary policy actions. We conclude that stock prices in the NMS are more sensitive to changes in the Euro Area interest rate than to the domestic one. Only in the Czech Republic and Poland we find a significant negative effect of contractionary monetary policy on stock prices. Moreover, we find that the volatility of stock prices in the NMS is mainly due to shocks related to exchange rate and Euro Area monetary policy shocks.
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"The Impact of Monetary Policy Shocks on Stock Prices: Evidence from Canada and the United States,"
Department of Economics at Dalhousie University working papers archive
stock_money19.pdf, Dalhousie, Department of Economics.
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