Interaction between monetary policy and stock prices: a comparison between the Caribbean and the US

Iglesias, Emma and Haughton, Andre

Andre Yone Textron Haughton

Applied Financial Economics

2013

6

23

Caribbean Area ; United States–Us ; Studies ; Comparative Analysis ; Variance Analysis ; Stock Prices ; Monetary Policy ; Latin America ; United States ; Experiment/Theoretical Treatment ; Economic Policy & Planning ; Investment Analysis & Personal Finance

515

This paper analyses the interaction between monetary policy and stock prices in Barbados, Jamaica and Trinidad and Tobago (T&T), both individually and jointly as the Caribbean countries using structural VARs, as proposed in Bjornland and Leitemo (2009). Annual and monthly frequencies are used for Barbados while, due to data availability constraints, only annual data is employed for Jamaica and T&T. When the authors analyse the three Caribbean countries jointly, a positive 1% stock price shock causes the Treasure bill rate to increase by 700 basis points and a positive monetary policy shock cause stock price to fall by 0.027%. Therefore, the results in relation to the signs of the relationships with annual data are similar to those of the US in Bjornland and Leitemo (2009), however the magnitudes are substantially different. The effect of a monetary policy shock is greater in the US, while the effect of a stock price shock is smaller in the US than in the Caribbean economy. The authors argue...

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