Impact of Monetary Policy on Stock Price: Evidence from Bangladesh

Abstract

This study intends to explore the impact of monetary policy on the performance of stock market from the perspective of a developing country-namely Bangladesh. The issue of monetary policy has been a subject of debate among several financial economists since a long time. Monetary policy is basically that part of the macroeconomics, which aims to achieve a set of objectives that are, conveyed in terms of several macroeconomic variables such as inflation, real output, money supply, exchange rate etc. As a result, any change in the monetary policy will have an effect on these variables. Understanding the sensitivity of stock market with respect to these variables of monetary policy frameworks is very important, particularly to recognize the monetary policy mechanism transmission into the stock market. This paper investigates whether current economic activities or more specifically the monetary policy tools of Bangladesh can explain stock market returns by using a number of econometric models of measuring long-run and short-run relationship between monetary policy tools and stock price