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Understanding the Stock Market’s Response to Monetary Policy Shocks

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Abstract

This paper explores whether a limited participation model of the monetary transmission mechanism can account for the observed response of stock market returns to monetary policy shocks. It is found that the model generates responses that broadly match the empirical counterparts, although the magnitudes are somewhat too small. Moreover, the results suggest that the increased exposure of bank-dependent firms to liquidity shocks cannot fully account for the heterogenous responses of returns that are observed across firms.

Suggested Citation

  • Johann Scharler, 2004. "Understanding the Stock Market’s Response to Monetary Policy Shocks," Working Papers 93, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:93
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    More about this item

    Keywords

    limited participation; asset pricing; stock market;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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