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The impact of ECB monetary policy surprises on the German stock market
Stockholm University, Faculty of Social Sciences, Department of Economics.
Number of Authors: 22018 (English)In: Journal of macroeconomics, ISSN 0164-0704, E-ISSN 1873-152X, Vol. 55, p. 46-63Article in journal (Refereed) Published
Abstract [en]

This paper examines the impact of ECB monetary policy surprises on German excess stock returns and the possible reasons for such a response. First, we conduct an event study to assess the impact of conventional and unconventional monetary policy on stock returns. Second, within the VAR framework of Campbell and Ammer (1993), we decompose excess stock returns into news regarding expected excess returns, future dividends and future real interest rates. We measure conventional monetary policy shocks using futures markets data. Our main findings are that the overall variation in German excess stock returns mainly reflects revisions in expectations about dividends and that the stock market response to monetary policy shocks is dependent on the prevailing interest rate regime. In periods of negative real interest rates, a surprise monetary tightening leads to a decrease in excess stock returns. The channels behind this response are news about higher expected excess returns and lower future dividends.

Place, publisher, year, edition, pages
2018. Vol. 55, p. 46-63
Keywords [en]
Monetary policy shocks, Stock market, Variance decomposition, VAR model, Unconventional monetary policy
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-155982DOI: 10.1016/j.jmacro.2017.09.001ISI: 000428486300004OAI: oai:DiVA.org:su-155982DiVA, id: diva2:1205621
Available from: 2018-05-14 Created: 2018-05-14 Last updated: 2018-05-14Bibliographically approved

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