Macroeconomic cycles and the stock market's reaction to monetary policy

Arabinda Basistha () and Alexander Kurov

Journal of Banking & Finance, 2008, vol. 32, issue 12, 2606-2616

Abstract: This paper examines cyclical variation in the effect of Fed policy on the stock market. We find a much stronger response of stock returns to unexpected changes in the federal funds target rate in recession and in tight credit market conditions. Using firm-level data, we also show that firms that face financial constraints are more affected by monetary shocks in tight credit conditions than the relatively unconstrained firms. Overall, the results are consistent with the credit channel of monetary policy transmission.

Keywords: Monetary; policy; Stock; market; Business; cycle; Credit; channel (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (140)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:12:p:2606-2616

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