Stock returns and monetary policy: Are there any ties?

Hafedh Bouakez, Badye Essid and Michel Normandin ()

Journal of Macroeconomics, 2013, vol. 36, issue C, 33-50

Abstract: This paper empirically investigates the following three questions: (i) Do stock returns respond to monetary policy shocks? (ii) Do stock returns alter the transmission mechanism of monetary policy? and (iii) Does monetary policy systematically react to stock returns? Unlike existing empirical research on these topics, we use a structural vector auto-regression that relaxes the restrictions commonly imposed in earlier studies and identify monetary policy shocks by exploiting the conditional heteroskedasticity of the structural innovations. Applying this method to US data, we find that the interaction between monetary policy and stock returns is much weaker than suggested by earlier empirical studies.

Keywords: Conditional heteroskedasticity; Identification; Monetary policy; Stock return; Structural vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E44 E52 G12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Working Paper: Stock Returns and Monetary Policy: Are There Any Ties ? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:36:y:2013:i:c:p:33-50

DOI: 10.1016/j.jmacro.2013.01.002

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