Monetary policy, exchange rates and stock prices in the Middle East region

Abouwafia, Hashem E.; Chambers, Marcus J.

doi:10.1016/j.irfa.2014.11.001

Cited by 29 publications

(25 citation statements)

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“…focus that have considered monetary policy in the nexus (for example (Abouwafia and Chambers, 2015;Gong and Dai, 2017)) are significantly different from our paper in ways discussed hereafter. Second, we also depart from previous studies by conducting in-depth analyses of the stock price-exchange rate nexus from the trade balance approach (TBA).…”

Section: Introductionmentioning

confidence: 72%

“…In the first case, monetary policy can be linked with stock prices through the impact of monetary policy rate via the real sector of the economy (Laopodis, 2013). Here, monetary policy affects stock prices through the liquidity channel; for instance when liquidity is low, firms' survival become difficult and demand for stocks are low or in situations when contractionary monetary (dear money) policy raises interest rates, this stiffens liquidity and the money supply in circulation (see (Mishkin, 2001;Rigobon and Sack, 2003;Bernanke and Kuttner, 2005;Ioannidis and Kontonikas, 2007;Sousa, 2010;Abouwafia and Chambers, 2015;Iddrisu et al, 2017)). This tightens net cash flows for economic agents (both individuals and firms) and discourages investment in stocks and tumbling stock prices.…”

Section: Introductionmentioning

confidence: 99%

“…In the second case, monetary policy is linked with exchange rate via capital flow in and out of the economy. Given the case of contractionary monetary policy, this promotes the attractiveness of the domestic currency over the foreign currency (that is, exchange rate appreciation) since such favors increased capital inflow into the economy (see Abouwafia and Chambers (2015)).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies

Alimi

Olaniran

2019

Asian Development Policy Review

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The study examined the role of monetary policy in the stock price-exchange rate nexus in the three major financial markets in Africa between 2005 and 2017. Essentially, the study attempted to validate the trade balance approach (TBA) for the African stock markets and conducted analyses in the periods before and after the global financial crisis (GFC). The study focused on Nigeria, South Africa and Egypt and utilized data on nominal exchange rate, stock price, nominal interest rate and consumer price index sourced from the International Financial Statistics of the International Monetary Fund. The trend analysis revealed that stock price and exchange rate in South Africa moved in the same direction while the variables moved in different directions in Nigeria and Egypt. With the aid of the panel autoregressive distributed lag technique (PARDL), the study showed negative and significant relationship between exchange rate and stock price, validating the TBA for the full sample and the post GFC periods while the theory cannot be substantiated for the pre-GFC period. Contribution/ Originality: This study contributes to the existing literature by examining the role of monetary policy in the stock price-exchange rate nexus in Africa's three largest economies. Using the Panel Autoregressive Distributed Lag Model, the study validates the TBA for the full sample in African stock markets.

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Section: Introductionmentioning

confidence: 72%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies

Alimi

Olaniran

2019

Asian Development Policy Review

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“…Ho and Huang (2015) tested the nonlinear relations between stock price indices and exchange rates of Brazil, Russia, India, and China. Abouwafia and Chambers (2015) tested the linkages among monetary policy, exchange rates, and stock prices in the Middle East region. Gelman et al (2015) analyzed the relations between real exchange rates and capital flows.…”

Section: Literature Reviewmentioning

confidence: 99%

Recent Comovements of the Yen-US Dollar Exchange Rate and Stock Prices in Japan

Tsuji¹

2015

WJBM

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This paper examines the recent relations of the yen/US dollar exchange rate and stock prices in Japan. Using bivariate Bayesian Vector Autoregressive (VAR) models, we derive several interesting findings as follows. First, 1) our analyses by Bayesian VAR models clarify that recently, the daily lags of the yen/dollar exchange rate series statistically significantly explain the evolution of the Nikkei 225, Nikkei 500, Japan Securities Dealers Association Quotation (JASDAQ), and Tokyo Stock Price Index (TOPIX) Core 30 stock index prices in Japan. Second, 2) our impulse response analyses reveal that Japanese stock prices clearly respond to the yen/dollar exchange rate changes in the recent years whilst the exchange rate changes little respond to the stock prices in Japan. As above our results demonstrate, recently, the past yen/dollar exchange rate time-series much more affect the evolution of the Japanese stock prices whilst the past Japanese stock price series little affect the yen/dollar exchange rate changes. Moreover, 3) analyzing the time-varying correlation coefficients between the yen/dollar exchange rate changes and Japanese stock returns, we also find the large increases in the contemporaneous correlations between the exchange rate and stock returns in the recent years in Japan.

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“…In this case, it was assumed that the monetary policy does not consider exchange rate movements 19 , and that the exchange rate does not contemporaneously effect upon the other variables. By contrast,Abouwafia and Chambers (2015) examined MP transmission in the Middle-East by the order of GDP, CPI, the exchange rate, and the policy rate. In Chapter 3, it was established that there is no evidence that the BoM responds to exchange rate.…”

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confidence: 99%

UQ eSpace

Bold-Erdene¹

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AcknowledgementFirst of all, I would like to express my sincere thankfulness to my thesis supervisor, Professor Rodney Strachan. With his supervision and support, I was able to overcome a number of challenges in writing this thesis.Secondly, I would like to thank the Australian Government for providing the necessary financial assistance. I also appreciate the editing by Bec Stafford.Last but not least, my deepest appreciation goes gratitude my family, father, mother and sister, for their constant assistance and encouragement.iv AbstractThe thesis examines the monetary policy rule and transmission mechanism in Mongolia through three empirical analyses. The first analysis estimates a monetary policy reaction function to the case of Mongolia context using a generalised method of moments approach.This research produces several interesting findings. Firstly, the evidence suggests that the monetary policy rule in Mongolia is forward-looking and responds to the expected inflation rate. Secondly, actual target inflation is low compared to the estimated target inflation. Thirdly, the monetary policy is conducted passively in response to changes in inflation. Finally, there is an overwhelming improvement in the Taylor rule prediction after the Bank of Mongolia (BoM) adopted inflation targeting regime in 2007.The second analysis presents the monetary transmission mechanism in Mongolia using the standard vector autoregression (VAR) model. We found sufficient evidence to conclude that the monetary transmission mechanism in Mongolia could be used to stabilise the economy.The model also examines three monetary policy channels-interest rate, bank lending, and exchange rate -with only the impulse response function of the bank lending channel being statistically significant at a 95% confidence interval.The third analysis is an extension of the second analysis and includes the housing market channel. The Bayesian VAR model was used to account for the small sample size of housing market channel. The housing price response to the monetary shock reaches its peak after six quarters.

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Monetary policy, exchange rates and stock prices in the Middle East region

Cited by 29 publications

References 50 publications

Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies

Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies

Recent Comovements of the Yen-US Dollar Exchange Rate and Stock Prices in Japan

UQ eSpace

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