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Financial integration, monetary policy and stock prices: Empirical evidence for the new EU member states

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  • PIROVANO, Mara

Abstract

We provide empirical evidence on the interaction between monetary policy and stock prices in 4 new EU member states of Central and Eastern Europe by estimating a small open economy macroeconometric model (SVAR) identified by means of short-run restrictions. Our modeling choices reflect the increasing integration between the NMS and the Euro Area. Our contributions are twofold. We analyze the monetary transmission mechanism through stock prices in the NMS and we determine the extent to which financial markets in the aforementioned countries are sensitive to euro area monetary policy actions. We conclude that stock prices in the NMS are more sensitive to changes in the Euro Area interest rate than to the domestic one. Only in the Czech Republic and Poland we find a significant negative effect of contractionary monetary policy on stock prices. Moreover, we find that the volatility of stock prices in the NMS is mainly due to shocks related to exchange rate and Euro Area monetary policy shocks.

Suggested Citation

  • PIROVANO, Mara, 2010. "Financial integration, monetary policy and stock prices: Empirical evidence for the new EU member states," Working Papers 2010024, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2010024
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    1. Li, Yun Daisy & Iscan, Talan B. & Xu, Kuan, 2010. "The impact of monetary policy shocks on stock prices: Evidence from Canada and the United States," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 876-896, September.
    2. Chelley-Steeley, Patricia L., 2005. "Modeling equity market integration using smooth transition analysis: A study of Eastern European stock markets," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 818-831, September.
    3. Ioannidis, Christos & Kontonikas, Alexandros, 2008. "The impact of monetary policy on stock prices," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 33-53.
    4. Alessio Anzuini & Aviram Levy, 2007. "Monetary policy shocks in the new EU members: a VAR approach," Applied Economics, Taylor & Francis Journals, vol. 39(9), pages 1147-1161.
    5. Elbourne, Adam & de Haan, Jakob, 2006. "Financial structure and monetary policy transmission in transition countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 1-23, March.
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    Cited by:

    1. Vasile Cocris & Anca Elena Nucu, 2013. "Monetary policy and financial stability: empirical evidence from Central and Eastern European countries," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 13(1), pages 75-98, July.
    2. Zina CIORAN, 2015. "Var Analysis Of The Transmission Mechanism Of Monetary Policy In Romania," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 7, pages 153-164, April.

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    More about this item

    Keywords

    Monetary policy shocks; New EU members; Stock prices; Financial integration;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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