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


  • Willem Thorbecke

    (The Jerome Levy Economics Institute)

  • Lee Coppock

    (The Jerome Levy Economics Institute)


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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  • Willem Thorbecke & Lee Coppock, 1999. "Monetary Policy, Stock Returns, and the Role of Credit in the Transmission of Monetary Policy," Macroeconomics 9902006, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9902006 Note: Type of Document - Acrobate PDF File; prepared on IBM PC; to print on PostScript; pages: 30; figures: included

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    References listed on IDEAS

    1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
    2. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
    3. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
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    Cited by:

    1. Thorbecke, Willem, 1997. " On Stock Market Returns and Monetary Policy," Journal of Finance, American Finance Association, vol. 52(2), pages 635-654, June.

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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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