Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152788
Authors: 
Ehrmann, Michael
Fratzscher, Marcel
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 354
Abstract: 
This paper analyses the effects of US monetary policy on stock markets. We find that, on average, a tightening of 50 basis points reduces returns by about 3%. Moreover, returns react more strongly when no change had been expected, when there is a directional change in the monetary policy stance and during periods of high market uncertainty. We show that individual stocks react in a highly heterogeneous fashion and relate this heterogeneity to financial constraints and Tobin's q. First, we show that there are strong industry-specific effects of US monetary policy. Second, we find that for the individual stocks comprising the S&P500 those with low cashflows, small size, poor credit ratings, low debt to capital ratios, high price-earnings ratios or high Tobin's q are affected significantly more. The use of propensity score matching allows us to distinguish between firmand industry-specific effects, and confirms that both play an important role.
Subjects: 
credit channel
financial constraints
monetary policy
propensity score matching
S&P500
stock market
Tobin’s q
JEL: 
G14
E44
E52
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.