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Monetary Policy, Stock Returns, and the Role of Credit in the Transmission of Monetary Policy

  • Willem Thorbecke
  • Lee Coppock

We use a multi-factor asset pricing model to investigate whether fluctuations in industry stock returns are due to industry stock returns are due to industry-specific shocks or to monetary and other macroeconomic factors. We find that common factors explain a substantial portion of the variation in stock returns, indicating that economic fluctuations are not due to industry-specific factors alone. We also find that disinflationary policy benefits large but not small firms. These results have mixed implications for the view that credit market frictions propagate monetary shocks.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_133.

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Date of creation: Jan 1995
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Handle: RePEc:lev:wrkpap:wp_133
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  1. Mark Gertler & Simon Gilchrist, 1993. "Monetary policy, business cycles and the behavior of small manufacturing firms," Finance and Economics Discussion Series 93-4, Board of Governors of the Federal Reserve System (U.S.).
  2. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  3. Alan C. Stockman, 1987. "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," NBER Working Papers 2313, National Bureau of Economic Research, Inc.
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