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2012•Communications of the IBIMAOpen access

Monetary Policy and Stock Markets: Evidence from EU Countries

Ovidiu Stoica, Delia Elena Diaconaşu

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Abstract

The analysis of monetary policy impact -via interest rate as instrument of intervention -on the evolution of stock market prices has gained more popularity during the current crisis due to the accumulation of financial imbalances.This article investigates the impact of monetary policy on equity indexes in European Union countries from January 2000 to February 2012, using cointegration and Granger causality tests.The results reveal the existence of long and short term relationship between stock prices and interest rates.We also find that on the long-run the comovement between interest rates and stock prices are stronger during crisis period, when compared with entire period.

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The analysis of monetary policy impact -via interest rate as instrument of intervention -on the evolution of stock market prices has gained more popularity during the current crisis due to the accumulation of financial imbalances.This article investigates the impact of monetary policy on equity indexes in European Union countries from January 2000 to February 2012, using cointegration and Granger causality tests.The results reveal the existence of long and short term relationship between stock prices and interest rates.We also find that on the long-run the comovement between interest rates and stock prices are stronger during crisis period, when compared with entire period.

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Available abstract

The analysis of monetary policy impact -via interest rate as instrument of intervention -on the evolution of stock market prices has gained more popularity during the current crisis due to the accumulation of financial imbalances.This article investigates the impact of monetary policy on equity indexes in European Union countries from January 2000 to February 2012, using cointegration and Granger causality tests.The results reveal the existence of long and short term relationship between stock prices and interest rates.We also find that on the long-run the comovement between interest rates and stock prices are stronger during crisis period, when compared with entire period.

Key concepts: Stock (firearms), Business, Monetary policy, Financial system, Monetary economics, Economics, Geography, Archaeology

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