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Monetary Policy and Stock Returns
Author(s) -
Ewing Bradley T.
Publication year - 2001
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00119
Subject(s) - economics , variance decomposition of forecast errors , vector autoregression , econometrics , stock (firearms) , monetary policy , stock market , composite index , stock market index , autoregressive model , macroeconomics , mechanical engineering , engineering , paleontology , composite indicator , horse , biology
The Standard & Poor stock market composite index is examined to determine how much of the variance in returns can be explained by monetary policy. The note employs the econometric technique of generalized forecast error variance decomposition developed by Koop et al . ( Journal of Econometrics , vol. 74, 1996, pp.119–47) and Pesaran and Shin ( Economics Letters , vol. 58, pp.17–29). Unlike the traditional orthogonalized decomposition, the generalized version is invariant to the ordering of the variables in the underlying vector autoregression. The results provide important information about the relationship between monetary policy and the stock market.