The Impact of Monetary Policy on Stock Prices in Eastern European Markets

摘要

Taking into consideration that monetary policy monitors the economic stability, and implicitly the financial stability, it is important to analyze how the monetary policy transmission mechanism is transmitted and embedded on stock markets, mainly on the emerging ones that face low capitalization, low liquidity and a more speculative and sensitive environment. In order to analyze this impact over several Eastern European Union emerging stock markets, we took as proxy short term interest rate for the monetary policy and stock price index for the stock market and we applied the Vector Autoregression (VAR) model over the period 2000-2011. The results highlight that only on the more developed stock markets the monetary policy has a significant impact. On the other markets this linkage isn't significant because of the specific characteristics of economic and financial environment. Even after the financial crisis the situation is the same, with the exception of Latvia, because of the existence of more important factors that affect the stock market, like uncertainty among investors and external shocks.