A Structural Time Series Analysis of the Effect of Quantitative Easing on Stock Prices

George B. Tawadros () and Imad A. Moosa
Additional contact information
George B. Tawadros: Department of Economics, College of Business, Winona State University, Winona, MN 55987, USA
Imad A. Moosa: Department of Economics, Kuwait University, Shaddadiya 46410, Kuwait

IJFS, 2022, vol. 10, issue 4, 1-17

Abstract: In this paper, a structural time series model is estimated to analyse the effect of quantitative easing (QE) on stock prices for the US, UK and Japan. The model is estimated by maximum likelihood in a time-varying parametric framework, using the DJIA, S&P500, NASDAQ, FTSE100 and the NIKKEI225 as the dependent variable and the balance sheet of the respective Central Bank as an explanatory variable, along with the unobserved components that account for the behaviour of other explanatory variables that are not explicitly specified in the model. The results show that QE had a significant but not exclusive effect on the DJIA, S&P500 and the NASDAQ, suggesting that these stock prices are also affected by other missing variables and cyclical movements. However, for the UK and Japan, no effect of QE on the FTSE100 and the NIKKEI225 is found, suggesting that variables other than QE are important for the rise in these stock prices. One plausible explanation for this result is that perhaps QE becomes effective only after a certain threshold level is met.

Keywords: central banks; quantitative easing; structural time series modelling; stock prices (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-7072/10/4/114/pdf (application/pdf)
https://www.mdpi.com/2227-7072/10/4/114/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jijfss:v:10:y:2022:i:4:p:114-:d:1000083

Access Statistics for this article

IJFS is currently edited by Ms. Hannah Lu

More articles in IJFS from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().