Global financial crisis, liquidity pressure in stock markets and efficiency of central bank interventions
In this article, we investigate the hypothesis of efficiency of central bank intervention policies within the current global financial crisis. We firstly discuss the major existing interventions of central banks around the world to improve liquidity, restore investor confidence and avoid a global credit crunch. We then evaluate the short-term efficiency of these policies in the context of the UK, the US and the French financial markets using different modelling techniques. On the one hand, the impulse response functions in a Structural Vector Autoregressive (SVAR) model are used to apprehend stock market reactions to central bank policies. On the other hand, since these reactions are likely to be of an asymmetric and nonlinear nature, a two-regime Smooth Transition Regression-Generalized Autoregressive Conditional Heteroscedasticity (STR-GARCH) model is estimated to explore the complexity and nonlinear responses of stock markets to exogenous shifts in monetary policy shocks. As expected, our findings show strong repercussions from interest rate changes on stock markets, indicating that investors keep a close eye on central bank intervention policies to make their trading decisions. The stock markets lead monetary markets, however, when central banks are slow to adjust their benchmark interest rates
|Date of creation:||01 Aug 2010|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00507821|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bjørnland, Hilde C. & Leitemo, Kai, 2005.
"Identifying the interdependence between US monetary policy and the stock market,"
Research Discussion Papers
17/2005, Bank of Finland.
- Bjørnland, Hilde C. & Leitemo, Kai, 2009. "Identifying the interdependence between US monetary policy and the stock market," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 275-282, March.
- Bjørnland, Hilde C. & Leitemo, Kai, 2005. "Identifying the Interdependence between US Monetary Policy and the Stock Market," Memorandum 12/2005, Oslo University, Department of Economics.
- Hilde C. Bjørnland & Kai Leitemo, 2008. "Identifying the interdependence between US monetary policy and the stock market," Working Paper 2008/04, Norges Bank.
- van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000.
"Smooth transition autoregressive models - A survey of recent developments,"
Econometric Institute Research Papers
EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
- van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," SSE/EFI Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001.
- Shiu-Sheng Chen, 2007.
"Does Monetary Policy Have Asymmetric Effects on Stock Returns?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(2-3), pages 667-688, 03.
- Shiu-Sheng Chen, 2005. "Does Monetary Policy Have Asymmetric Effects on Stock Returns?," Macroeconomics 0502001, EconWPA, revised 01 Feb 2005.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00507821. 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: (CCSD)
If references are entirely missing, you can add them using this form.