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Monetary policy announcements and stock price dynamics in a small open economy

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  • Chao, Chi-Chur
  • Hu, Shih-Wen
  • Tai, Meng-Yi
  • Wang, Vey

Abstract

Using a monetary framework with stock markets, this paper investigates dynamic behaviors of a small open economy with various adjustments in the manufacturing prices. For an instantaneous adjustment of the manufacturing prices, stock values and exchange rates may appear to misjump or misadjust at the instant of the monetary policy announcement. When the manufacturing prices adjust sluggishly, exchange rates may overshoot but stock values can exhibit various dynamic patterns, including overshooting or undershooting.

Suggested Citation

  • Chao, Chi-Chur & Hu, Shih-Wen & Tai, Meng-Yi & Wang, Vey, 2011. "Monetary policy announcements and stock price dynamics in a small open economy," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 520-531, October.
    • Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:520-531
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    References listed on IDEAS

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    Cited by:

    1. Tsai, Chun-Li, 2014. "The effects of monetary policy on stock returns: Financing constraints and “informative” and “uninformative” FOMC statements," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 273-290.
    2. Chiang, Thomas C. & Chen, Xiaoyu, 2016. "Stock returns and economic fundamentals in an emerging market: An empirical investigation of domestic and global market forces," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 107-120.
    3. Chen, Li-Ju & Ye, Chusheng & Hu, Shih-Wen & Wang, Vey & Wen, Jiandong, 2013. "The Effect of a Target Zone on the Stabilization of Agricultural Prices and Farmers' Nominal Income," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(1), pages 1-14, April.
    4. Yi-Jang Yu, 2015. "Short-term Technical Predictive Ability in the Taipei Stock Market," Research in World Economy, Research in World Economy, Sciedu Press, vol. 6(2), pages 50-61, June.
    5. Shih-Wen Hu & Li-Ju Chen & Vey Wang & Meng-Yi Tai & Lee-Jung Lu & Chiu-Yue Lin, 2015. "Energy Policies and Food Prices," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 11(1), pages 47-68, January.
    6. Chao, Chi-Chur & Hu, Shih-Wen & Lai, Ching-Chong & Tai, Meng-Yi & Wang, Vey, 2013. "Tariff-tax reform and exchange rate dynamics in a monetary economy," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 63-73.
    7. Anna BRZOZOWSKA & Dagmara BUBEL & Antonina KALINICHENKO & Larysa NEKRASENKO, 2017. "Transformation of the agricultural financial system in the age of globalisation," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 63(12), pages 548-558.

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