scholarly journals STOCK MARKET COINTEGRATION AND DIVERSIFICATION OPPORTUNITIES UNDER INFLATION TARGETING REGIME

2021 ◽  
Vol 4 (4) ◽  
Author(s):  
Albina Hysaj ◽  
Güven Sevil
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Inflation Targeting ◽  
Emerging Market ◽  
Central Banks ◽  
Stock Index ◽  
Long Run ◽  
Monetary Authorities ◽  
Short Run ◽  
Low Levels

Monetary authorities use monetary policy to achieve their objectives. Keeping inflation stable, at low levels is the main objective of central banks. While central banks use monetary policy to control inflation, its decisions also impact the overall economy and financial market. The aim of this paper is to investigate the diversification opportunities in 17 developed and emerging market economies that have implemented inflation targeting. By using Johansson cointegration and Gregory Hanssen tests we investigate the existence of long run co integration relationship between different markets. Moreover, we investigate the short run diversification opportunities by analyzing the short run exposure of each stock index to the S&P 1200 Global Index. The results of our study suggest that stock markets of Brazil and Czech Republic offer very good diversification opportunities, while the Colombian stock market offers very limited diversification opportunities as Colombia stock index has co integration relationship with almost other indices. JEL: G15, G11 <p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu_01/0726/a.php" alt="Hit counter" /></p>

INFLATION TARGETING: IT'S NOT BROKE, IT DOESN'T NEED FIXING, BUT CAN IT SURVIVE?

2010 ◽  
Vol 01 (01) ◽  
pp. 59-80
Author(s):  
PIERRE L. SIKLOS
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Asset Price ◽  
Central Banks ◽  
Economic Downturn ◽  
Price Increases ◽  
The Global Financial Crisis ◽  
Nominal Anchor

Until the end of 2005 there were few outward signs that the inflation targeting (IT) monetary policy strategy was deemed fragile or that the likelihood of abandoning it was high. In light of the severe economic downturn and the global financial crisis that has afflicted most economies around the world since at least 2008, it is worth reconsidering the question of the fragility of the inflation targeting regime. This paper reprises the approach followed in Siklos (2008) but adds important new twists. For example, the present study asks whether the continued survival of IT is due to the fact that some of the central banks in question did take account of changes in financial stress. The answer is no. Indeed, many central banks are seen as enablers of rapid asset price increases. The lesson, however, is not that inflation targeting needs to be repaired. Instead, refinements should be considered to the existing inflation targeting strategy which has evolved considerably since it was first introduced in New Zealand 20 years ago. Most notably, there should be continued emphasis on inflation as the primary nominal anchor of monetary policy, especially in emerging market economies (EME), even if additional duties are assigned to central banks in response to recent events.

scholarly journals Does Monetary Policy and Foreign Direct Investment Have an Influence on the Performance of Stock Market: Further Empirical Evidence from Ghana

2020 ◽  
Vol 2 (2) ◽  
pp. 161-176
Author(s):  
Opoku Adabor ◽  
Emmanuel Buabeng
Keyword(s):  
Monetary Policy ◽  
Foreign Direct Investment ◽  
Stock Market ◽  
Direct Investment ◽  
Market Performance ◽  
Empirical Literature ◽  
Long Run ◽  
Stock Market Performance ◽  
Short Run ◽  
Positive Effect

Monetary policy, foreign direct investment, and the stock market continue to dominate in discussions in developing countries. However, the linkage between the three variables in empirical literature remains unclear. This study aims to test two separate hypotheses: Firstly, the study examines the effects of monetary policy on stock market performance in Ghana. Secondly, the study also empirically investigates the effect of foreign direct investment on stock market performance in Ghana. Autoregressive Distributed Lag (ARDL) model was employed as an estimation strategy to examine the short and long-run effects using annual time series data from 1990 to 2019. The study revealed that monetary policy rate and money supply exerts a statistically significant negative and a positive effect on stock market performance in both the long and short-run in Ghana, respectively. It was also found that foreign direct investment has significant and a positive effect on stock market performance in Ghana in both the long and short run. Total capital stock and volume traded were also found to exert significant positive and negative impacts on stock market performance both in the short and long run respectively. Based on our findings, we recommend that expansionary monetary policy will be a better option to be carried out to improve the stock market performance in Ghana. Furthermore, government and private partnership may ensure the effective management of the macroeconomic variables to attract foreign direct investment into Ghana to boost stock market performance.

scholarly journals Relations and Emotions beyond the Boundaries in the Post Crisis Era – An Analysis of the Impact of Selected Variables on the Indian Stock Market

2018 ◽  
Vol 4 (8) ◽  
pp. 72
Author(s):  
Pooja Yadav ◽  
Nitin Huria
Keyword(s):  
Stock Market ◽  
Global Economy ◽  
Stock Index ◽  
Asia Pacific ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run ◽  
Current Scenario ◽  
Indian Stock Market ◽  
The Impact

From a decade or so Indian continent has become the centre of attraction in the global economies. This changed outlook is due to the fact that India embraces vast availability of resources and opportunities which makes it the most vibrant global economy in the current scenario of worldwide sluggishness. On this path of growth and prosperity India is showing stiff commitments and competitive edges with developed as well as emerging countries. To be more specific, during this voyage in the Asia pacific region recently on one side India has seen stronger bonding with some of its old mates like Japan but on the other part it has faced strain like situation from its stronger competitor contender china on the same time. Hence, in this context the main aim of this paper is to examine the long run and short run equilibrium impacts of Japan and Chinese stock index as well as macroeconomic variables impact on Indian stock market. This paper finds the presence of both long and short run equilibrium impacts from China and Japan to India. In case of Japanese financial market (Nikki 225) has a trivial negative but significant long run impact whereas, the Chinese stock index (SSE composite) is operating at the short run with the same mild negative but significant impact on the Indian stock market. The results of the impact of macroeconomic variables find the existence of long run as well as short run equilibrium from some of the selected variables on Indian stock market.

Inflation Targeting and the IMF

Policy Papers ◽  
2006 ◽  
Vol 2006 (6) ◽  
Author(s):  
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Emerging Markets ◽  
Inflation Targeting ◽  
Technical Assistance ◽  
Emerging Market ◽  
Central Banks ◽  
Policy Framework ◽  
Monetary Policy Framework ◽  
The Imf

Inflation targeting is becoming the monetary policy framework of choice in a growing number of emerging market and developing countries. This paper examines the experience of non-industrial inflation targeting countries to review the implications for the Fund’s approach to surveillance, technical assistance, and the design of conditionality in Fund-supported programs. For this examination, the paper uses macroeconomic data, technical assistance reports, and a new survey of central banks in selected emerging markets.

scholarly journals The Role of Gold Prices and Interest Rate in Stock Index: Insights from Vietnam by Using the Autoregressive Distributed Lag Approach

2020 ◽  
Vol 12 (1) ◽  
pp. 178
Author(s):  
Le Thi Minh Huong ◽  
Phan Minh Trung
Keyword(s):  
Interest Rate ◽  
Stock Market ◽  
Interest Rates ◽  
Stock Index ◽  
Stock Market Index ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Market Index ◽  
Long Run ◽  
Short Run

This study aimed to determine the impact of domestic gold prices, interest rates in the stock market index (VNI) in Vietnam for the period of January 2009 to December 2018. This study employed the Autoregressive Distributed Lag (ARDL) to check the association of Independent variable gold prices and the interest rate on the dependent variable stock market index. The results show a close correlation together in the long-run. The Vietnam stock index is adversely affected by fluctuations in the credit market in the short-run. We observed that domestic gold prices and interest rates have one-way causal relations to the stock price index. Similarly, interest rates were causal for gold prices and still not yet had any particular direction. The adjustment in the short-run moves the long-run equilibrium, although the change is quite slow.

Monetary Policy Effects on the Stock Market in China: Comparing Two Restriction Schemes in the SVAR Model

2020 ◽  
Vol 23 (04) ◽  
pp. 2050033
Author(s):  
Gang Wang ◽  
Yucheng Jiang
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Stock Price ◽  
Policy Instruments ◽  
Commodity Price ◽  
Policy Instrument ◽  
Stock Index ◽  
Chinese Stock Market ◽  
Lending Rate ◽  
Short Run

This paper analyzes and compares the effects of the monetary policy on the stock price in China based on SVAR models with two different restriction schemes. As suggested by existing literature, there are four major monetary policy instruments used by the People’s Bank of China. They are the seven-day repo rate, the one-year benchmark lending rate, the M2, and the total loan. We run SVARs with the monetary policy instrument, the stock index, and the macroeconomic variables and show the impulse responses of the stock index to the monetary policy shocks. After comparing two restriction schemes, the short-run Cholesky restrictions and the short-run and long-run combined restrictions for identification, we conclude that the latter restriction method leads to better estimation than the former one. In general, a contractionary monetary policy shock lowers the stock price, appreciates the Chinese currency, reduces the output gap, injects deflation, and shrinks the commodity price gap. We find that the benchmark lending rate is more effective in regulating the Chinese stock market than the other monetary policy instruments. In addition, a combination of price-based and quantity-based monetary policy instruments is suggested for impacting the stock market and stabilizing the economy in China.

Optimal Monetary Policy

1998 ◽  
Vol 164 ◽  
pp. 100-109 ◽  
Author(s):  
Andrew P. Blake ◽  
Martin Weale ◽  
Garry Young
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Policy Design ◽  
Policy Framework ◽  
Optimal Monetary Policy ◽  
Long Run ◽  
Short Run ◽  
The Interest Rate ◽  
Feedback Rule ◽  
Simple Feedback

In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.

scholarly journals Money, the Stock Market and the Macroeconomy: A Theoretical Analysis

2013 ◽  
Vol 52 (3) ◽  
pp. 235-246
Author(s):  
Rilina Basu ◽  
Ranjanendra Narayan Nag
Keyword(s):  
Stock Market ◽  
Open Economy ◽  
Emerging Market ◽  
Equity Markets ◽  
Market Valuation ◽  
Policy Makers ◽  
Exogenous Shocks ◽  
Long Run ◽  
Short Run ◽  
Stock Market Valuation

The finance-growth nexus has become a significant issue in recent macroeconomic modelling and the centre of attention of policy makers. Over the past few decades equity markets have experienced phenomenal growth which has proved to be a major determinant of capital flow to emerging market economies. Naturally, one wants to know how development of equity markets influences the real sector and produces macroeconomic outcomes. In this paper we construct an open economy, structuralist model to examine the short-run and long- run effects of both policy-induced and exogenous shocks on output, the dynamics of stock market valuation and adjustment in monetary base. The model shows that devaluation or capital inflow will boost the economy, while fiscal expansion has deleterious consequences for stock market valuation and investment. JEL Classifications: G01, G12, F32, F36 Keywords: Tobin’s q, Effective Demand, Devaluation

Monetary Policy in Low Financial Development Countries

2021 ◽  
Author(s):  
Juan Antonio Morales ◽  
Paul Reding
Keyword(s):  
Monetary Policy ◽  
Financial Development ◽  
Financial Stability ◽  
Policy Making ◽  
Inflation Targeting ◽  
Emerging Market ◽  
Empirical Studies ◽  
Central Banks ◽  
Microfinance Institutions ◽  
Trade Offs

The book gives broad coverage of monetary policy issues in Low Financial Development Countries (LFDCs). These low- and lower-middle-income countries are characterized by a predominance of bank finance, shallow financial markets, low financial inclusion, weak integration with world capital markets, and a high degree of informality in economic activity. Monetary policy acquires special twists, making it different in many aspects from the policies followed in advanced and emerging market economies. The book covers the main facets of monetary policy-making, using an approach that combines discussion of theoretical arguments, of results from empirical studies, and of policy experiences relevant for LFDCs. The book presents the monetary policy instruments used in these countries, and assesses the specificities of their monetary transmission mechanism. It evaluates the advantages, drawbacks, and challenges of the different nominal anchors they may choose from: exchange rate targeting, monetary targeting, and inflation targeting. This discussion is set against the background of the three main goals pursued by central banks: price, output, and financial stability. Particular attention is devoted to the issue of the credibility of central banks and to the trade-offs they face when external shocks, to which these countries are very vulnerable, lead to conflicts among the three goals they pursue. The book also covers more specific topics, such as challenges raised by fiscal dominance and by dollarization, implications of informal labour markets and of microfinance institutions for monetary policy-making, and the role of models for forecasting and policy evaluation.

scholarly journals Inflation targeting: From “constrained discretion” to singularity

2020 ◽  
pp. 39-52
Author(s):  
Oleg Buklemishev
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Central Banks ◽  
Political Uncertainty ◽  
Policy Regime ◽  
Dynamic Inconsistency ◽  
Monetary Authorities ◽  
International Monetary Policy

In recent years, inflation targeting has become a staple of international monetary policy. The paper considers different challenges this monetary policy regime faces with regard to suppressed inflation, attaining the zero lower bound on the policy interest rates, and committing central banks to simultaneously pursue additional objectives such as financial stability. Inflation targeting has proved inefficient in raising inflation to the target zone from below, and unorthodox monetary policy tools have not proved their validity in this regard yet. As a result, monetary authorities are more inclined to discretion allowing them to compromise different aspects of “pure” inflation targeting. The value of this discretion is based on asymmetric information and boosted by additional functions assumed by central banks. However, it might bring about serious problems of dynamic inconsistency, compounded political uncertainty, and bureaucratic misconduct. Since none of the alternatives to inflation targeting currently looks fully satisfactory, it is concluded that the inflation targeting regime should be transformed to take into account the current situation, but a necessary precondition for the effectiveness of the new regime is enhanced accountability of central banks.

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