680 - Stock and Bond Market Sensitivities to Monetary Variables

Wetenschappelijke publicatie
Date 1 February 2002

This note examines the impact of interest rate and money shocks on Euro Area and U.S. financial markets. More specifically, a dynamic Gordon model is developed for stock and bond returns, which allows for a decomposition in fundamental factors. It is found that the impact of official interest rate shocks on financial markets is stronger and more significant than that of money shocks. The Euro Area betas are larger for stocks than bonds, while the opposite is true for U.S. betas. Key words: Monetary policy shocks, dynamic Gordon model, return decomposition, betas JEL codes: G12