Open AccessMonetary Policy and Stock Price Dynamics in Nepal
Author(s) -
Mani Shrestha
Publication year - 2020
Publication title -
journal of business and management research/journal of business and management research
Language(s) - English
Resource type - Journals
eISSN - 2467-9267
pISSN - 2382-5219
DOI - 10.3126/jbmr.v3i1.31972
Subject(s) - monetary policy , economics , monetary economics , stock (firearms) , credit channel , inflation targeting , monetary hegemony , monetary base , money supply , interest rate , monetarism , mechanical engineering , engineering
Monetary authorities are attentive towards stock price movement because of its significance in financial stability. Though stock price is one of the major channels of monetary transmission, very little is known about it in Nepali context. This study analyzed monetary variables, stock prices, and monetary policy goals using time series data. Results from Koyck approach to distributed lags, vector autoregression and mediation analysis revealed mixed evidence of causality between monetary policy and stock prices. Though results were not consistent across different econometric analysis, inter-bank interest rate, narrow money supply, broad money supply, monetary policy announcement, and monetary policy stances were found to be significant in explaining stock prices. Furthermore, causality also existed from stock prices to monetary policy, suggesting that monetary authorities also consider development in stock prices while formulating monetary policies. However, stock prices had not been found to mediate the relationship between monetary policy variables and monetary policy goals, which questioned stock prices being a channel of monetary policy transmission in Nepal.