Impacts of oil shocks on stock markets in Norway and Japan: Does monetary policy's effectiveness matter?

This study aims to analyze the effectiveness of monetary policy. It is important to study the influence channel of monetary policies on the real economy. Based on the structural VAR model, this study uses the monthly data from the Chinese financial sector and actual macroeconomic variables from January 2001 to December 2020 to analyze the influence channel of monetary policy and its impact on the real economy in order to find out about the effectiveness of monetary policy. Focusing on before and after the global financial crisis, this study elaborates on the transmission effects of monetary policy before and after the global financial crisis. The results are as follows. In terms of the impact of rising interest rates, before and after the global financial crisis, industrial production continued to be negatively affected for a long time and consumer prices continued to increase during this period leading to price difficulties. In addition, the money supply and the RMB exchange rate decreased. Due to the shock of rising interest rates, stock indexes have fallen as predicted according to the economic theories. Moreover, because of the shock of rising interest rate, higher money supply, industrial production situation was unexpected before and after the global financial crisis, which led to a positive effect on consumer prices in the short-term. The change of RMB exchange rate was not obvious statistically, but there was a negative effect. During this period, stock indexes was the opposite of expectation. The impact of some macroeconomic variables on monetary policy can be seen as different from predictions based on economic theories and it doesn’t have much statistical significance, indicating the lack of effectiveness and transmission effect of monetary policy. The influence channel and effects of monetary policies are similar to the black box. Inevitably there will be changes in the financial markets and the real economy according to the specific conditions. It also means the influence channel and effects of monetary policy don’t play a vital role. It takes a long time for monetary policies to affect the real economy. Therefore, to maximize the effect of monetary policies, it is essential to determine the current economic situation and implement the policies. Furthermore, it is vital to actively improve the financial market system. Hence, it will be possible to enhance the efficiency of financial resource allocation and enable the financial market to do its roles in structural adjustment and risk prevention.

This paper shows that the effects of expansionary monetary policy on the U.S. stock market are asymmetric across different monetary policy phases and different stock market regimes. A Markov-switching dynamic factor model dates the periods of stock market regimes, and generates a new composite measure for overall stock market movements. A time-varying parameter analysis finds that an expansionary monetary policy such as an increase in monetary aggregates or a decrease in the Federal funds rate has positive impacts on stock returns only during the periods in which they are used as monetary policy targets by the Federal Reserve.

Stock market response to monetary and fiscal policy shocks: Multi-country evidence

Expansionary monetary policies, which started to be implemented after the global crisis in 2008 and became widespread during the COVID-19 period, lowered global interest rates and increased the stock market indexes. This study aims to investigate the effects of expansionary monetary policies implemented before and during COVID-19 on foreign direct investment (FDI) flows to emerging economies. In this context, the effect of expansionary monetary policies on FDI has been tried to be determined through the changes created in financial indicators such as interest rate and stock market index. Accordingly, the effects of the developments in the global stock market index and interest rates on the FDI for Brazil, China, Turkey, and Poland were estimated using the autoregressive distributed lag (ARDL) model for the period 2008–2021. Empirical findings show that expansionary monetary policy practices before and during COVID-19 causing high global stock market index and low-interest rates encourage FDI inflows to developing countries. The empirical results on the effects of expansionary monetary policies applied before and during COVID-19 on FDI allow important implications to be made when considered together with the contractionary monetary policies to be implemented after COVID-19. So much so that our empirical results in favour of FDI flows to developing countries regarding the expansionary monetary policies implemented before and during COVID-19 imply that the transition to contractionary monetary policy in the post-COVID-19 period may cause significant constraints on the FDI inflows to developing countries. Therefore, it may be expected that favourable financial conditions for foreign direct capital inflows to developing countries will disappear in the post-COVID-19 period. In other words, the falling global stock market index and increasing interest rates along with the contractionary monetary policies implemented in the post-COVID-19 period will be able to have the potential to cause a significant change in the investment preferences of international companies towards developing economies. The general policy prescription obtained from the results of the study shows that developing countries would need much more FDI-attracting policies in order to compensate for the negative financial effects of contractionary monetary policies implemented in the post-COVID-19 period.

At present, China is in the critical stage of transforming from a quantitative monetary policy to a price-based monetary policy. The implementation of a quantitative-price mixed monetary policy can further improve the effect of monetary policy and interest rate regulation and maintain the stable operation of the macro economy. Based on the current economic situation, this article conducts experiments to prove the relationship between its monetary policy and the term structure of interest rates. To this end, this article first analyzes and compares the final effects of monetary policy on regional economies with the aid of an analysis framework that can simultaneously take into account the individuality of regional economies, the spillover effects between regional economies and the overall nature of monetary policy. Then, this article further combines the current background of interest rate marketization and monetary policy from quantity-oriented price-oriented changes. Focusing on the interest rate channel, it deeply analyzes the regional effects and formation of China's monetary policy under the new situation. First of all, on the basis of combing and summarizing relevant literature, find the expansion space for evaluating the regional effect of China's monetary policy. Experimental research results show that the term structure of interest rates is playing an increasingly important role in monetary policy. Combining the study of the term structure of interest rates with monetary policy and examining the relationship between them can not only promote the role of interest rates in macro-control, but also have important implications for improving the forward-looking and effectiveness of monetary policy.

The relative effectiveness of fiscal and monetary policies in promoting economic growth is not sufficiently examined at the empirical level for developing countries, including Egypt in particular. Hence, this paper is the first attempt to empirically examine the relative effectiveness of fiscal and monetary policies in promoting Egypt’s output growth utilizing a time-series data set over the time-period (1960–2019). The study employs the Autoregressive Distributed Lag (ARDL) Bounds testing approach to cointegration to investigate the long run and short run effects of fiscal and monetary policies on Egypt’s output growth under a modified version of the St. Louis equation model. The study finds that both monetary and fiscal policies have a positive impact on the economic activity in the long run. However, while monetary policy seems to be more effective than fiscal policy in stimulating the growth rate of nominal GDP, fiscal policy tends to have a larger, more predictable and faster impact than monetary policy on the real economic activity. Accordingly, Egypt’s policymakers are advised to follow the Keynesian’s prescription in terms of increasing the reliance on fiscal policy compared to monetary policy to achieve macroeconomic stability in both the short run and long run.

ABSTRACT: The purpose of the study is to analyze the relative efficacy of monetary and fiscal policies in fostering economic growth in Bangladesh concerning predictability, speed, and magnitude. Moreover, it aims to find the relationship between the economic boom of Bangladesh and two measures of macroeconomic management i.e., monetary and fiscal policy. The ARDL model and bound test are applied to examine the long-term link between monetary policy, fiscal policy, and economic growth. Data is obtained from the World Development Indicator (WDI) for Bangladesh for the period 1974 to 2022. Several diagnostics tests like CUSUM and CUSUMQ are used to identify both the strengths and weaknesses of the models. The findings demonstrated a long-term correlation between the two policies and economic growth. According to the calculated short-run coefficients, the short-term effect of fiscal policy is mentionable but the effect of monetary policy is negligible in the short term. But over time, the immediate effects become noteworthy. The long-term outcomes indicated that both fiscal and monetary policies have a favorable and substantial long-term impact on economic growth. The result shows fiscal policy is more effective compared to monetary policy for making Bangladesh, a role model of Bangladesh. Furthermore, all the diagnostics tests showed the stability of the estimated ARDL model. Expansionary fiscal and monetary policies lead to higher government spending and an increase in the money supply, which raises GDP levels. Conversely, if government spending and the money supply decline (contractionary fiscal and monetary policies), the GDP level falls. As a result, this study suggests using expansionary policies to boost Bangladesh’s economy.

This paper examines panel data from 127 prefecture-level cities between 2015 and 2023 to investigate the relationship between resident leverage ratios and the effectiveness of monetary policy. The study finds that as resident leverage ratios increase, the effectiveness of monetary policy regulation is diminished. By setting different explanatory and response variables, the article demonstrates that an increase in resident leverage ratios diminishes the effects of quantitative monetary policy and price-based monetary policy. Furthermore, the paper reveals that resident leverage ratios lead to regional heterogeneity in the effectiveness of monetary policy, indicating that in areas with lower resident leverage ratios, the effectiveness of monetary policy is reduced.

This study empirically analysed the effect of monetary policy on inflation in Nigeria; 1970 – 2018. The objective is to determine the effectiveness of monetary policy instruments on inflation in Nigeria. In doing this, relevant literature was reviewed and theoretical relationship between monetary policy and inflation was established following the quantity theory of money by Irving Fisher. The study employed time series data sourced from the statistical bulletin of Central bank of Nigeria (CBN) 2018. Stationarity test was also conducted on the time series data to determine the order of integration using Augmented Dickey Fuller (ADF) test. The unit root test revealed that inflation rate was stationary at level i.e. I(0) while monetary policy rate, treasury bill rate and cash reserve ratio were stationary at first difference i.e. I(1). The estimated results showed that there is cointegration between monetary policy variables and inflation rate in Nigeria. The results revealed that Monetary Policy Rate (MPR) was statistically significant in the short run after first difference, which indicates that monetary policy rate (MPR) exerts significant effect on inflation in Nigeria in the short run. Based on these findings, the study concluded that monetary policy variables alone are not sufficient enough in maintaining price stability in Nigeria. Therefore, the Federal government, Central Bank of Nigeria (CBN) and policy makers should simultaneously use monetary and fiscal policy instruments to maintain price stability in Nigeria.

In this paper we investigate the relationship between monetary policy and the exchange rate. Our primary goal is to analyze the effect of tight monetary policy on reversing the currency under-valuation. We look at a sample of 19 developing countries for a period of twenty years. We find tight monetary policy to be ineffective in correcting real exchange rate misalignment when governments can engage in devaluation and undertake fiscal policy in addition to monetary policy. I. Introduction IMF’s recommendation to the Asian countries, whose currencies were under attack, was to raise interest rates. IMF’s belief was that higher interest rates would stop capital flight and help rebuild investor confidence. This is a standard IMF prescription for countries experiencing currency and financial crises. Financial assistance from the IMF is usually conditional on implementation of these policies. IMF has been criticized for too quickly prescribing the old recipe without taking into account the differences in the Asian currency crises. Critics of IMF argue that when financial crises are brought about by excessive spending by fiscal authorities, tightening of monetary policies is sensible advice. But Asian countries were characterized by high savings, low inflation and budgets in surplus at the onset of the Asian crises. Their problem was not lax monetary or fiscal policy, but rather investor panic. Furman and Stiglitz (1998), Krugman (1998), Sachs and Radelet (1998), and Stiglitz (1998) provide a review of the channels through which tight monetary policy may affect the exchange rate.

PurposeThis paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines).Design/methodology/approachThis study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries.FindingsThe findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply).Originality/valueThis paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

This study explores the relative effectiveness of monetary and fiscal policies on economic growth in Bangladesh for the period from fiscal year 1974 to2015 employing cointegration and Vector Error Correction Model (VECM). We use nominal GDP as a proxy for economic growth, while broad money supply (M2) and reserve money (RM) as proxies for monetary policy. Total government revenue (TR) and total government expenditure (TE) are used as proxies for fiscal policy. The Johansen cointegration tests reveal that monetary policy (M2 and RM) has a greater long run positive impact on economic growth over fiscal policy in Bangladesh. The results of VECM show that there is a weak long run causality running from monetary and fiscal policies to economic growth. VECM also finds that GDP, M2 and TR play a part to adjust any disequilibrium, while TR picks up the disequilibrium rapidly and guides the variables of the system back to equilibrium. VECM Granger causality/block exogeneity Wald test results show that M2 is the leading indicator with respect to economic growth in Bangladesh in the short run. Moreover, economic growth is a leading indicator with respect to fiscal policy in the short run. Thus, we conclude that monetary policy is the more effective channel than fiscal policy to promote economic growth in the short run and long run in Bangladesh.

Monitoring the effectiveness of the monetary policy of central banks is a crucial factor in the strategic management of the monetary sphere, not only at the national but also at the global level of the economy. Therefore, improving the methodological tools for this monitoring is of both scientific and practical interest, which determines the relevance of the research topic. The study aims to develop methodological tools to conduct a quantitative and qualitative assessment of the effectiveness of the monetary policy of central banks. The work uses a targeted approach to determining the effectiveness of the monetary policy, as well as methods of systemic-structural, comparative economic and GAP analysis. The empirical analysis of the effectiveness of the monetary policy in several countries for the period of 2014-2019 relies on the data of the World Bank and the Bank of Russia. The novelty of the study is in the targeted approach to the analysis and assessment of effectiveness. This approach is based on the specific features of strategic management of monetary circulation, which allows for a comprehensive objective assessment of the effectiveness regardless of the variety of strategic objectives of monetary policy and their development mechanisms in different countries. The study resulted in the methodology for quantitative assessment of monetary policy effectiveness and the criteria for qualitative evaluation of the analyzed effectiveness. The authors made conclusions regarding changes in the effectiveness of monetary policy in different countries, identified trends in the effectiveness of the monetary policy of the Bank of Russia, and revealed imbalances in its effectiveness at the level of federal districts. The results of the study confirmed the applicability and practical significance of the developed tools for analyzing and assessing the effectiveness of the monetary policy of central banks. By their means, international and national organizations will manage to identify best practices to implement monetary policy and recommend them for countries with low effectiveness of strategic management of monetary circulation.

The purpose of the current research is to conduct a system theoretical and methodological analysis of the relationship between monetary indicators and stock market indices identifying effective monetary policy channels that influence the stock market development, as well as to describe the key approaches to estimation of the respective relationship. The research relies on the following methods: system analysis and synthesis, generalization, systematization, and data grouping, as well as scientific abstraction and concretization. Study results. The conducted analysis made it possible to substantiate the relationship between monetary and stock market development indicators. In addition, we identified the key factors influencing the significance and direction of the central banks’ actions on the stock market indices’ dynamics. We also summarized and systematized the key empirical approaches used by Ukrainian and foreign scientists to analyze the respective relationship. The results of this research paper can be used for further empirical analysis of the relationship between monetary indicators and stock market indices for different types of economies by using economic and mathematical modelling to investigate the effective monetary policy instruments that stimulate stock markets development. Conclusions. Significant relationship between monetary policy and stock market indices was confirmed, mainly for countries with a developed stock markets infrastructure and efficient actions of monetary policy makers. Based on our analysis, the key factors influencing the efficiency of monetary policy include the monetary policy type, the business cycle stage, the level of market capitalization, the structure and amount of firm financing, the industry and firm-specific characteristics, the market conditions and trends. We also identified that in similar research the vector autoregressive models (VAR) have been used, including the vector error-correction models. A further empirical study of the relationship between monetary policy and stock markets, considering theoretical findings summarized in our research, will help to better understand the monetary policy transmission mechanism as well as respective reactions of stock market indicators. JEL classification: E52, E59 Manuscript received 29.03.2020

This paper examines the effect of domestic monetary policy on capital flows after controlling for the effect of conventional push factors (global factors). We conduct a time‐varying coefficient vector autoregressive (TVC‐VAR) model analysis using monthly data (January 2010–July 2019) from Korea. Our empirical results show that an expansionary monetary policy shock has a short‐run (1‐ and 3‐month) negative impact on gross inflows to the equity market, which is the main driver of gross capital inflows to Korea. This negative effect increases throughout the sample period. Monetary policy easing is also associated with a decrease in outflows of equity, representing a reversal of Korean residents’ foreign equity investment as the domestic policy rate decreases. This effect dampens the negative impact on gross capital inflows, which leads to mild responses of net capital inflows in the short run. We also find a clear relationship between the level of the policy rate and its impact on gross capital inflows. The lower the policy rate, the greater the negative impact of the expansionary monetary policy shock on gross capital inflows. This time‐varying effect reflects difficulties that many emerging market economies, including Korea, face in setting monetary policy when policy rates are low.