Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77475
Authors: 
Alcidi, Cinzia
Year of Publication: 
2009
Series/Report no.: 
HEID Working Paper 03/2009
Abstract: 
This paper investigates the effects of equity market integration on the transmission of monetary policy shocks. Based on the assumption that financial market liberalization and integration lead to falling portfolio holding costs, we analyze its effect on a twocountry DSGE model with staggered prices and endogenous portfolio choice under incomplete markets. The model predicts that the reaction of stock prices, output and RER becomes muted upon impact and less persistence with falling portfolio holding costs. To test for a similar pattern in the data, we estimate a VAR with rolling coefficients for Australia, which provides a good case study. We identify a monetary policy shock with the sign restriction approach. The impulse responses generated by the data are consistent with the prediction of the model and imply that equity market liberalization seems to weaken the impact of monetary policy, at least on stock prices.
Subjects: 
Endogenous portfolio
Monetary policy
Equity market liberalization
(S)FAVAR
JEL: 
E52
C32
F21
F36
Document Type: 
Working Paper

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