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Article
Publication date: 12 October 2015

J. Christopher Hughen and Scott Beyer

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine…

Abstract

Purpose

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return data to determine the relation between the dollar’s value and stock prices as it relates to monetary policy.

Design/methodology/approach

The authors examine US stock returns over a 40-year period, which is classified according to monetary policy and dollar trend. To better understand the impact of foreign exchange fluctuations, the authors estimate a model of stock returns using the three Fama-French factors and a momentum factor. Then the authors explore the underlying economic fundamentals that drive the sharp difference in annual returns between periods when the dollar is in an uptrend trend with loose monetary policy and periods when the dollar is in a downtrend with tight monetary policy.

Findings

Over the last 40 years, US stock returns were 2.5 times higher when the dollar was trending up vs down. The factor model of returns shows that equity returns are positively associated with periods when the dollar appreciated. Returns were particularly high when the dollar was in an uptrend during accommodative monetary policy. During these periods, stocks in the consumer goods and services industries provided relatively high returns. This occurred with strong economic growth due to consumer spending. Stocks exhibited the lowest returns when the dollar was depreciating and the Federal Reserve was tightening.

Originality/value

The key contribution of the research is that currency trends should be analyzed in the light of monetary policy. During periods of accommodative monetary policy and dollar appreciation, the US stock market provided average returns of 18.7 percent compared to −3.29 percent during a period of restrictive monetary policy and dollar depreciation. This result is driven by stronger economic growth, which is composed of consumer spending that more than offsets the dollar’s impact on net exports.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 13 May 2019

Rosaria Rita Canale and Rajmund Mirdala

Abstract

Details

Fiscal and Monetary Policy in the Eurozone: Theoretical Concepts and Empirical Evidence
Type: Book
ISBN: 978-1-78743-793-7

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Article
Publication date: 8 April 2021

Harpreet Singh Grewal and Pushpa Trivedi

The purpose of this paper is to investigate the impact of the US unconventional monetary policy surprises on the management of trilemma in India.

Abstract

Purpose

The purpose of this paper is to investigate the impact of the US unconventional monetary policy surprises on the management of trilemma in India.

Design/methodology/approach

This paper uses the event study approach along with OLS and MANOVA to examine the impact.

Findings

The results validate the existence of trilemma in India for the period from October 2008 to December 2017. The results also show that monetary policy independence still exists in India in the wake of greater spillover effects during the Federal Open Market Committee announcement days. The spillover effects on USD-INR exchange rates and capital flows are found to be statistically significant. The MANOVA results show that the trilemma in India is influenced by around 20% by the changes in the US monetary policy.

Originality/value

The above approach of event study combined with MANOVA in this subject area has not been used before to the best of the authors’ knowledge. Further, there are only a few studies that exist on the spillover effects of the US monetary policy actions on the management of trilemma in India.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Book part
Publication date: 13 May 2019

Rosaria Rita Canale and Rajmund Mirdala

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II…

Abstract

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

Details

Fiscal and Monetary Policy in the Eurozone: Theoretical Concepts and Empirical Evidence
Type: Book
ISBN: 978-1-78743-793-7

Keywords

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Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Abstract

Details

Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels
Type: Book
ISBN: 978-0-44452-122-4

Abstract

Details

The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies
Type: Book
ISBN: 978-1-78973-319-8

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Book part
Publication date: 1 October 2014

Xuan Vinh Vo and Phuc Canh Nguyen

A thorough understanding of transmission mechanism is a key to a successful conduct of monetary policy. This chapter attempts to improve knowledge in this respect by…

Abstract

A thorough understanding of transmission mechanism is a key to a successful conduct of monetary policy. This chapter attempts to improve knowledge in this respect by examining the impacts of commercial bank risks on the transmission of monetary policy. We investigate the impact of monetary policy on bank risk in Vietnam pre and post 2008 global financial crisis employing a unique and disaggregated bank level data set from 2003 to 2012. The results of panel data estimation indicate that the bank lending channel of monetary is evidenced in Vietnam. In addition, we find that the transmission mechanism is affected by characteristics of commercial banks.

Details

Risk Management Post Financial Crisis: A Period of Monetary Easing
Type: Book
ISBN: 978-1-78441-027-8

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Book part
Publication date: 25 July 2019

Perry Warjiyo and Solikin M. Juhro

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Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Book part
Publication date: 1 July 2015

Qiheng Han, Junqing Li and Jianbo Zhang

Based on an uncertainty model with an infinite horizon, this chapter analyzes how financial development and monetary policy in two countries can impact international trade…

Abstract

Based on an uncertainty model with an infinite horizon, this chapter analyzes how financial development and monetary policy in two countries can impact international trade and capital flows and influence individual behavior and welfare. Our study shows that differences in capital market development are the major contributing factors for trade imbalance and investment among countries. We also find that monetary policies are important factors affecting the trade balance, consumption, and investment. Countries with one-sided, pegging exchange rate policies tend to buy more bonds and enjoy larger trade surpluses. This effect is closely related to the level of capital market development: in these two countries, at higher stages of development, the effects of idiosyncratic monetary policy on imbalance are amplified.

Details

Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
Type: Book
ISBN: 978-1-78441-779-6

Keywords

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