Financial integration, monetary policy and stock prices: Empirical evidence for the new EU member states

Mara Pirovano

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: We provide empirical evidence on the interaction between monetary policy and stock prices in 4 new EU member states of Central and Eastern Europe by estimating a small open economy macroeconometric model (SVAR) identified by means of short-run restrictions. Our modeling choices reflect the increasing integration between the NMS and the Euro Area. Our contributions are twofold. We analyze the monetary transmission mechanism through stock prices in the NMS and we determine the extent to which financial markets in the aforementioned countries are sensitive to euro area monetary policy actions. We conclude that stock prices in the NMS are more sensitive to changes in the Euro Area interest rate than to the domestic one. Only in the Czech Republic and Poland we find a significant negative effect of contractionary monetary policy on stock prices. Moreover, we find that the volatility of stock prices in the NMS is mainly due to shocks related to exchange rate and Euro Area monetary policy shocks.

Keywords: Monetary policy shocks; New EU members; Stock prices; Financial integration (search for similar items in EconPapers)
JEL-codes: E44 E52 F36 G10 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-10
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2010024

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