According to Bernanke and Gertler (2001) changes in asset prices (including stock prices) should only impact monetary policies to the extent that they affect the central banks forecast of inflation. Therefore, the target of monetary policy is inflation and not specifically stock prices. Hayford and Malliaris (2002) used different methodologies to determine whether monetary policy has influenced the stock market since it crashed on October 19, 1987. The results indicate that, rather than using the Federal Funds rate policy to offset increases in the value of the stock market above estimates of fundamentals, Federal Fund policy has on average accommodated what is considered to be overvaluation of the stock market. Hayward and Malliaris (2002) found evidence in the FOMC minutes which is consistent with Taylor (1993). Taylor’s (1993) rule suggests that Federal Funds rate target has largely been st in response to inflation and measures of excess demand and therefore is not solely a response to offset potential stock market valuations. Rigobon and Sack (2003) employed an identification technique based on the heteroskedasticity of stock market returns in order to determine the response of monetary policy to stock market movements. Using daily and weekly movements in interest rates and stock prices between 1985 and 1999 Rigobon and Sack (2003) found that the response of monetary policy to stock market movements was significant. The results showed a 5% rise (fall) in the Standard and Poor’s (S&P) 500. ...Show more
The aim of this study “Monetary Policy Responds to Stock Market Movements” is to determine whether monetary policy responds to stock market movements or not. It looks at the interrelationships between stock market movements and monetary policy.
The measure being used to estimate volatility is ‘beta’ whose reliability in examining historical volatility rates have been assessed and zeroed down upon in the literature review. The methodology aims at examining the degree of volatility in the market returns of the petrochemical industry.
The researcher will try to find out the effect of the oil prices on the stock markets of Gulf Council Countries considering all the factors which affects the stock market like the capital existing in the market, the gross domestic product, the unemployment rate etc. Is there a positive correlation between the two or there is a negative correlation between the two variables that would also be analyzed.
Japan and the United States are contrasts in terms of each country’s economic activity. The United States is a market based economy while Japan is an export based economy. Market based economy is deemed stronger since it is not solely dependent on its exports or imports to stimulate its economic activity.
Data since 1960 has been collected of FTSE to test the relationship between the variables under study. The researcher discusses important theories related to the study and then discusses theoretical concepts and relationship between these variables. Eviews software has been used to test the relationship and the research study has revealed positive and significant relationship between the monetary policy and return of the stock market.
However, the recent financial crisis of 2007 has asked numerous questions of the traditional understanding of macro policy conduct. In particular the crisis revealed the necessity to re-examine the theoretical and empirical underpinnings of macro-policy. Thus, whether these announced goals of the Fed are appropriate warrants re-inspection.
With the help of daily index returns, two ways of realised volatility are achieved by estimating ARCH models. Almost all the relevant information on the index is used; therefore, in-sample estimate provides minimal increments in the high frequency index returns.
Determining the impact of monetary policy to stock market will enable market analyst to predict stock movements. Trending and predicting movements of economic indicators will enable market analyst to determine foreign exchange trends. For economic planners it is imperative to model the optimum monetary policy to ensure that there is economic stability.
The research will establish the different causes of rise or drop of the stock market index in Kuwait and relate the findings with the oil prices at different particular situations. The research will assess the various issues that determine the direct effect of changes in oil prices in the Kuwait and compare it with others countries that depend oil for establishment of their economies.
To illustrate how a stock market operates and spreads the wealth in one country, let us say Company-A has been so successful in its manufacturing operations that all its goods sell as fast they are produced. The firm knows that it could sell even more products if it could get enough money to build another factory.
The author states that financial market reforms were central to China’s commitment to the World Trade Organization, in which China became a member in 2001. Following China’s WTO membership, international investors gained easier access to the financial market. The Chinese government is trying to change the function of the two existing stock exchanges.
22 pages (15000 words)Dissertation
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