Monetary policy and stock market dynamics across monetary regimes

Monetary Transmission Mechanism in Sri Lanka: A Comprehensive Assessment with New Evidence

“…In the baseline specification, the vector of endogenous variables i.e., y t consists of key variables: real gross domestic product (GDP t ), consumer price index (CPI t ), a measure of monetary aggregate, i.e., narrow money supply (M1 t ) and the domestic nominal short-term interest rate given by the interbank money market rate (MMR t ), and hence can be written as follows. (2008); Laopodis (2013) to incorporate the impact of liquidity into the VAR system. 14/ The use of the money market rate (MMR t ) as the monetary policy indicator is also guided by prior literature such as Ito and Sato (2008); Rafiq and Mallick (2008), and it captures the exogenous shifts in the monetary policy stance (Gertler and Gilchrist, 1993).…”

“…Meanwhile, VD for prices (SRI_CPI) indicates that after four years (16 quarters), money accounts for 41 per cent of the fluctuation in prices while own shocks account for more than 50 per cent of the variance. Interest rate innovations alone account only for about 5 per cent after 24/ In the VAR systems, positive orthogonalised shocks to central bank policy rates are related to a protracted rise in the price levels suggesting that some inflation indicator is missing from the VAR (Laopodis, 2013). This is well known as 'price puzzle', i.e., prices increase following an interest rate tightening (Sims, 1992;Leeper et al, 1996;Kim and Roubini, 2000).…”

U.S. stock markets and the role of real interest rates

“…On October 15, 2013 This paper estimates U.S. stock market responses to monetary policy, allowing for oil prices and exchange rates conveying important information from other financial markets around the world. While recent research by Laopodis (2013) suggests varying U.S. stock market responses to the FED conduct of monetary policy, we allow in this paper for a combination of nominal interest rates and price pressures in goods markets as the driving forces, controlling for other financial markets. We pay particular attention to the extremely low levels of nominal interest rates in the U.S., which has made the real interest rate become negative.…”

U.S. Monetary Policy, Commodity Prices and the Financialization Hypothesis

“…Some authors focus on the impact of money supply and the Federal Fund interest rate, and show that a very accommodative monetary policy (in response to the financial crisis) tends to increase (weakly but significantly) commodity prices (Anzuini et al, 2013). Again, a historical approach over a long (Frankel and Hardouvelis, 1985;Frankel, 1986;Frankel and Rose, 2010) or a very long (Laopodis, 2013) period helps to detail recent changes. Moreover, commodity prices notably derive from expected interest rates and consumer prices (Frankel, 2014).…”