The impact of monetary policy shocks on stock prices: Evidence from Canada and the United States |
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Authors: | Yun Daisy Li Talan B. İşcan Kuan Xu |
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Affiliation: | 1. Richard Ivey School of Business, University of Western Ontario, 1151 Richmond Street, London, ON, Canada N6A 3K7;2. Department of Economics, Dalhousie University, Halifax, NS, Canada B3H 3J5 |
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Abstract: | Using structural VAR models with short-run restrictions appropriate for Canada and the United States, we empirically examine whether trade and financial market openness matter for the impact on and transmission to stock prices of monetary policy shocks. We find that, in Canada, the immediate response of stock prices to a domestic contractionary monetary policy shock is small and the dynamic response is brief, whereas in the United States, the immediate response of stock prices to a similar shock is relatively large and the dynamic response is relatively prolonged. We find that these differences are largely driven by differences in financial market openness and hence different dynamic responses of monetary policy shocks between the two countries that we model in this paper. |
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Keywords: | E440 E520 G100 C300 |
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