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Stock and Bond Market Sensitivities to Monetary Variables

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  • N. Valckx

Abstract

This note examines the impact of interest rate and money shocks on Euro Area and U.S. financial markets. More specifically, a dynamic Gordon model is developed for stock and bond returns, which allows for a decomposition in fundamental factors. It is found that the impact of official interest rate shocks on financial markets is stronger and more significant than that of money shocks. The Euro Area betas are larger for stocks than bonds, while the opposite is true for U.S. betas.

Suggested Citation

  • N. Valckx, 2001. "Stock and Bond Market Sensitivities to Monetary Variables," WO Research Memoranda (discontinued) 680, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:680
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    File URL: https://www.dnb.nl/binaries/wo0680_tcm46-145977.pdf
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    References listed on IDEAS

    as
    1. Beyer, Andreas & Doornik, Jurgen A & Hendry, David F, 2001. "Constructing Historical Euro-Zone Data," Economic Journal, Royal Economic Society, vol. 111(469), pages 102-121, February.
    2. Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
    3. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-576, June.
    4. Valckx, Nico, 2001. "Factors affecting asset price expectations : Fundamentals and policy," Research Discussion Papers 13/2001, Bank of Finland.
    5. Campbell, John Y & Mei, Jianping, 1993. "Where Do Betas Come From? Asset Price Dynamics and the," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 567-592.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monetary policy shocks; dynamic Gordon model; return decomposition; betas;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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