The Impact of Monetary Policy on Financial Markets in Small Open Economies: More or Less Effective During the Global Financial Crisis?

Steven Pennings, Arief Ramayandi and Hsiao Chink Tang ()
Additional contact information
Hsiao Chink Tang: Asian Development Bank, Postal: 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines., http://adb.org

No 72, Working Papers on Regional Economic Integration from Asian Development Bank

Abstract: This paper estimates the impact of monetary policy on exchange rates and stock markets for eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia and Thailand. On average across these countries, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 1% fall in stock market indices. The effect on exchange rates is notably weaker in the non-Organization for Economic Cooperation and Development (OECD) countries with a managed float. For the OECD countries, there is no robust evidence of a change in the effect of policy during the global financial crisis. For the non-OECD countries, there is some evidence of a stronger effect of policy on stock markets during the crisis, although further research is needed to investigate whether this is a result of measurement issues.

Keywords: Monetary policy effectiveness; exchange rate; stock prices; crisis; Asian economies (search for similar items in EconPapers)
JEL-codes: E44 E52 G14 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2011-01-01
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon and nep-sea
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The impact of monetary policy on financial markets in small open economies: More or less effective during the global financial crisis? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbrei:0072

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