The Relation between Monetary Policy and the Stock Market in Europe
We use a cointegrated structural vector autoregressive model to investigate the relation between monetary policy in the euro area and the stock market. Since there may be an instantaneous causal relation, we consider long-run identifying restrictions for the structural shocks and also used (conditio...
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| Format: | Article |
| Language: | English |
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MDPI AG
2018-08-01
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| Series: | Econometrics |
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| Online Access: | http://www.mdpi.com/2225-1146/6/3/36 |
| _version_ | 1811298479683665920 |
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| author | Helmut Lütkepohl Aleksei Netšunajev |
| author_facet | Helmut Lütkepohl Aleksei Netšunajev |
| author_sort | Helmut Lütkepohl |
| collection | DOAJ |
| description | We use a cointegrated structural vector autoregressive model to investigate the relation between monetary policy in the euro area and the stock market. Since there may be an instantaneous causal relation, we consider long-run identifying restrictions for the structural shocks and also used (conditional) heteroscedasticity in the residuals for identification purposes. Heteroscedasticity is modelled by a Markov-switching mechanism. We find a plausible identification scheme for stock market and monetary policy shocks which is consistent with the second-order moment structure of the variables. The model indicates that contractionary monetary policy shocks lead to a long-lasting downturn of real stock prices. |
| first_indexed | 2024-04-13T06:20:00Z |
| format | Article |
| id | doaj.art-66b2d12d92dc4511ac07427c95758749 |
| institution | Directory Open Access Journal |
| issn | 2225-1146 |
| language | English |
| last_indexed | 2024-04-13T06:20:00Z |
| publishDate | 2018-08-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj.art-66b2d12d92dc4511ac07427c957587492022-12-22T02:58:40ZengMDPI AGEconometrics2225-11462018-08-01633610.3390/econometrics6030036econometrics6030036The Relation between Monetary Policy and the Stock Market in EuropeHelmut Lütkepohl0Aleksei Netšunajev1Department of Economics, Freie Universität Berlin, 14195 Berlin, GermanyDepartment of Economics and Finance, Tallinn University of Technology, 12618 Tallinn, EstoniaWe use a cointegrated structural vector autoregressive model to investigate the relation between monetary policy in the euro area and the stock market. Since there may be an instantaneous causal relation, we consider long-run identifying restrictions for the structural shocks and also used (conditional) heteroscedasticity in the residuals for identification purposes. Heteroscedasticity is modelled by a Markov-switching mechanism. We find a plausible identification scheme for stock market and monetary policy shocks which is consistent with the second-order moment structure of the variables. The model indicates that contractionary monetary policy shocks lead to a long-lasting downturn of real stock prices.http://www.mdpi.com/2225-1146/6/3/36cointegrated vector autoregressionheteroscedasticityMarkov-switching modelmonetary policy analysis |
| spellingShingle | Helmut Lütkepohl Aleksei Netšunajev The Relation between Monetary Policy and the Stock Market in Europe Econometrics cointegrated vector autoregression heteroscedasticity Markov-switching model monetary policy analysis |
| title | The Relation between Monetary Policy and the Stock Market in Europe |
| title_full | The Relation between Monetary Policy and the Stock Market in Europe |
| title_fullStr | The Relation between Monetary Policy and the Stock Market in Europe |
| title_full_unstemmed | The Relation between Monetary Policy and the Stock Market in Europe |
| title_short | The Relation between Monetary Policy and the Stock Market in Europe |
| title_sort | relation between monetary policy and the stock market in europe |
| topic | cointegrated vector autoregression heteroscedasticity Markov-switching model monetary policy analysis |
| url | http://www.mdpi.com/2225-1146/6/3/36 |
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