Economics at your fingertips  


Edouard Challe () and Chryssi Giannitsarou ()

Working Papers from HAL

Abstract: Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on real stock prices: a 25-basis point increase in the nominal interest rate is associated with an immediate decrease in broad real stock indices that may range from 0.6 to 2.2 percent, followed by a gradual decay as real stock prices revert towards their long-run expected value. In this paper, we assess the ability of a general equilibrium New Keynesian asset-pricing model to account for these facts. The model we consider is a production economy with elastic labor supply, staggered price and wage setting, as well as time-varying risk aversion through habit formation. We find that the model predicts a stock market response to policy shocks that matches empirical estimates, both qualitatively and quantitatively. Our findings are robust to a range of variations and parameterizations of the model.

Keywords: Monetary policy; Asset prices; New Keynesian general equilibrium model (search for similar items in EconPapers)
Date: 2012-09-07
New Economics Papers: this item is included in nep-mac and nep-mon
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Stock prices and monetary policy shocks: A general equilibrium approach (2014) Downloads
Working Paper: Stock Prices and Monetary Policy Shocks: A General Equilibrium Approach (2011) Downloads
Working Paper: Stock Prices and Monetary Policy Shocks: A General Equilibrium Approach (2011) Downloads
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:

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2020-10-26
Handle: RePEc:hal:wpaper:hal-00719956