The Stock Market as a Transmission Mechanism: A study of the London Stock Exchange's reaction to Bank rate changes
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
It is a prime responsibility for central banks to prevent and contain the financial crises. Therefore it is vital to understand what effect actions taken by a central bank have on the economy. The Bank rate is a powerful tool in monetary policy actions. Our aim has been to examine if abnormal returns on the London Stock Exchange using the FTSE 100 index can be explained by changes in Bank of England's rate over a ten-year period. We have used an event study and a multiple regression model. The reason for using two different models was to study both the announcement effect and the long-term effect. As the market is dependent of many factors we have included the following variables in our regression analyse; the UK unemployment rate, the money reserve, exchange rate index, sterling/US dollar exchange rate, the retail price index, the short interest rate and the Bank rate.
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IdentifiersURN: urn:nbn:se:su:diva-2790OAI: oai:DiVA.org:su-2790DiVA: diva2:191870