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Monetary Policy and the Stock Market: Empirical Evidence from the UK
Finance & Accounting
Pages 26 (6526 words)
Abstract This research report identifies and analyses the relationship between the monetary policy and return of the stock market. Taylor rule has been used to analyse and test the relationship between the monetary policy and volatility in the stock return.
1. INTRODUCTION: 1.1. Overview and Background of the Research Study: Different research studies have been conducted in order to identify and explore the relationship between the monetary policy and stock market. The central bank has always been under pressure to come up with appropriate monetary policy in order to regulate inflation and output gap in the economy. It is important to explore and understand the relationship between monetary policy and other important economic indicators. For this purpose, one should first able to comprehend the main concept of monetary policy and important components of monetary policy. The monetary policy is devised in order to control the supply of the money in the economy. The monetary policy is formulated by the central bank or other regulatory bodies, which decides about the amount and growth of the money supply in the economy. This is done with the help of increasing or decreasing the interest rate or altering the amount of money which the banks can hold i.e. bank reserves. It is important to establish here that the interest rate is decided on the basis of the different factors and elements like inflation rate and the economic development or level of output within a particular economy. ...
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