TRANSMISSION OF MONETARY POLICY SHOCKS AND INTERNATIONAL STOCK RETURNS: CASE OF G-7 COUNTRIES

Öz

This paper, by using VAR methodology, presents evidence that the monetary policy of a large country causally affects not only that country’s stock prices but also asset prices abroad. Besides this it also tests the theoretical implications of the four major international macroeconomic theories and compares the test results with these predictions. In theory expansionary monetary shocks of a large country will reduce domestic and world interest rates, depreciate the domestic currency, and increases domestic output. Increases in the domestic output will raise the demand for foreign goods. The depreciation of the domestic currency, in turn, will decrease foreign price levels and increases foreign real balances, since the depreciation of the currency reduces the foreign currency price of imports. The fall in the foreign country interest rates and the aggregate demand spillover from the large economy will stimulate foreign output, consumption and investment. Thus, expansionary monetary policy in the large economy should not only increase output and, thereby, asset returns domestically, but also abroad

Anahtar Kelimeler

• Monetary transmission mechanism, stock returns, monetary policy, exchange rates, interest rates

TRANSMISSION OF MONETARY POLICY SHOCKS AND INTERNATIONAL STOCK RETURNS: CASE OF G-7 COUNTRIES

Öz

Bu makale, VAR tekniginden yararlanarak, gelismeis ekonomiye sahip bir ulke olan Amerika Birlesik Devletlerinin para politikasi soklarinin bu ulke ve diger G-7 ulkelerinin makroekonomik degiskenlerine ve ozellikle uluslararasi finansal piyasalara nasil etki ettigini ortaya koymaktadir. Bunun yaninda, para polikasinin aktarim mekanizmasi ve ilgili ana teoriler aciklanmis ve cikarimlari test edilerek bu test sonuclari teorilerin cikarimlari ile karsilastirilmistir. Teorik olarak, buyuk bir ulkenin genisletici para politikasi yerli ve uluslararasi faiz oranlarini dusururken, paranin degerini dusurur ve yerli mili gelir duzeyinin artmasina sebep olur. Yabanci faiz oranlarinin dusmesi ve buyuk ulkeden gelen ithalat talebinin artmasi sonucu ortaya cikan genisletici etki ayni zamanda yabanci ulkelerin tuketim, yatirim ve milli gelirlerinin de artmasi sonucunu dogurur. Sonuc olarak genisletici para politikasi sadece ilgili ulkenin degil ayni zamanda entegre diger ekonomilerin refah durumunu iyilestirirken, finansal piyasalarada olumlu katkilar saglamis olur

Anahtar Kelimeler

• Parasal gecis mekanizmalari, finansal piyasalar, para politikası, döviz kuru, faiz oranları

Kaynakça

1. Backus, David. K., Patrick J. Kehoe and Finn E. Kydland;( 1993), “International Business Cycles: Theory and Evidence”, NBER Working Paper Series, no. 4493, October.
2. Basu, Susanto and Alan M. Taylor;( 1999), “Business Cycles in International Historical Perspective”, NBER Working Paper Series, no. 7090, April.
3. Bernanke, Ben and Alan S. Blinder;( 1992), “The Federal Funds Rate, and the Channels of Monetary Transmission”, American Economic Review, v.82, pp.901- 21, September.
4. Bernanke, Ben and Kenneth N. Kuttner;( 2004), “What Explains the Stock Market’s Reaction to Federal Reserve Policy?”, NBER Working Paper, No. 10402, March. Bernanke, Ben, Mark Gertler and Simon Gilchrist;( 1996), “The Financial Accelerator and the Flight to Quality”, Review of Economics and Statistics, v.78, pp.1-15, February.
5. Bernanke, Ben, Mark Gertler and Simon Gilchrist;( 1998), “The Financial Accelerator in a Quantitative Business Cycle Framework”, NBER Working Paper Series, no. 6455, March.
6. Bernanke, Ben, Jean Boivin, and Piotr Eliasz;( 2004), “Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach”, NBER Working Paper No. 10220, January.
7. Bordo, Michael D. and David C. Wheelock;( 2004), “Monetary Policy and Asset Prices: A Look Back at Past U.S. Stock Market Booms”, NBER Working Paper No. 10704, August
8. Campbell, John Y.;( 1998), “Asset Prices, Consumption, and the Business Cycle”, NBER Working Paper Series, no. 6485.

9. Caves, Richard E., Jeffrey A. Frankel and Ronald W. Jones;( 1990), World Trade and Payments: an Introduction, Fifth edition, Glenview, Ill. and Landon, Harper Collins College Publishers.
10. Christiano, Lawrence, Martin Eichenbaum and Charles Evans;( 1998), “Monetary Policy Shocks: What Have We Learned and to What End?”, NBER Working Paper Series, no. 6400, February.
11. Conover, Mitchell C., Gerald R. Jensen and Robert R. Johnson;( 1999), “Monetary Environments and International Stock Returns”, The Journal of Banking and Finance, v.23, n.9, pp.1357-1381, September.
12. Eichenbaum, Martin and Charles L. Evans;( 1995), “Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates”, The Quarterly Journal of Economics, v.110, n.4, pp.975-1009, November.
13. Engel, Charles and Michael B. Devereux;( 1998), “Fixed vs. Floating Exchange Rates: How price setting affects the optimal choice of Exchange-rate regime”, NBER Working Paper Series, no. 6867.
14. Forbes, Kristin and Roberto Rigobon;( 1999), “No Contagion, Only Interdependence: Measuring Stock Market Co-Movements”, NBER Working Paper Series, no. 7267, July.
15. Frankel, Jeffrey, Sergio Schmukler and Luis Serven;( 2000), “Global Transmission of Interest Rates: Monetary Independence and Currency Regime”, The World Bank Policy Research Working Papers, August.
16. Goldberg, Pinelopi K. and Michael M. Knetter;( 1996), “Good Prices and Exchange Rates: What Have We Learned?”, NBER Working Paper Series, no. 5862, December.
17. Jensen, Gerald R., Robert R. Johnson and J.M. Mercer; (1996), “Business Conditions, Monetary Policy and Security Returns in the US”, Journal of Banking and Finance.
18. Kollman, Robert; (1999), “Explaining International Co-movements of Output, and Asset Returns: The Role of Money and Nominal Rigidities”, The IMF Working Paper Series, WP/99/84, June.
19. Lane, Philip R.; (1999), “The New Open Economy Macroeconomics: A Survey”, CEPR Discussion Paper, no.2115.
20. Lastrapes, William D. (1998), “International Evidence on Equity Prices, Interest Rates and Money”, Journal of International Money and Finance, v.17, no.3, pp.377-406, June.
21. Malliaropulos, Dimitrios, (1998), “International Stock Return Differentials and Real Exchange Rates”, Journal of International Money and Finance, v.17, n.3, pp.493- 511.
22. Mishkin, Frederic S. (2001), “The Transmission Mechanism and the Role of Asset Prices in Monetary Policy”, NBER Working Paper No. 8617, December.
23. Obstfeld, Maurice and Kenneth Rogoff, (1995), “The Mirage of Fixed Exchange Rates”, NBER Working Paper Series, no. 5191, July.
24. Obstfeld, Maurice and Kenneth Rogoff,( 1996), Foundations of International Macroeconomics, Cambridge, MA: MIT Press.
25. Obstfeld, Maurice and Kenneth Rogoff,( 1999), “New Directions for Stochastic Open Economy Models”, NBER Working Paper Series, no. 7313, August.
26. Patelis, Alex D,( 1997), “Stock Returns Predictability: The Role of Monetary Policy”, Journal of Finance, v.52, n.1, March.
27. Rigobon, Roberto and Brian Sack,( 2002), “The Impact of Monetary Policy on Asset Prices”, NBER Working Paper No. 8794, February.
28. Stadler, George W.( 1994), “Real Business Cycles”, Journal of Economic Literature, v.32, December.
29. Thorbecke, Willem H. ( 1997), “On Stock Market Returns and Monetary Policy”, The Journal of Finance, v.52, n.2, June.
30. Walsh, Carl E.( 1998), Monetary Theory and Policy, The MIT Press, Cambridge, Massachusetts.