Monetary Policy, Stock Prices and Central Banks - Cross-Country Comparisons of Cointegrated VAR Models

Ansgar Belke and Marcel Wiedmann

No 435, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: In this paper, we analyze the long-run behavior and short-run dynamics of stock markets across some selected developed and emerging economies - namely the United States, the Euro Area, Japan, the United Kingdom, Australia, South Korea, Thailand and Brazil - in the Cointegrated Vector-Autoregressive (CVAR) framework. The main purpose is to assess empirically if liquidity conditions play a significant role for stock market developments. As an innovation, liquidity conditions enter the analysis from three angles: in the form of a broad monetary aggregate, the interbank overnight rate and net capital flows which in our case stands for the share of global liquidity that arrives in the recipient economy. A second aim is to check empirically whether central banks are able to serve as a driver of the stock market as it, for instance, seems to be the case in late 2012 and 2013 in the wake of the forward guidance conveyed by central banks worldwide.

Keywords: asset prices; CVAR; central banks; monetary policy; VECM (search for similar items in EconPapers)
JEL-codes: E43 E58 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:435

DOI: 10.4419/86788491

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