Analyzing Monetary Policy

This book analyzes the relationships among monetary policy stock pricesand exchange rates. After introducing the relationship among thevariables of interest and the problems of measuring the effects ofmonetary policy on stock prices or exchange rates the simultaneous relationshipbetween monetary policy and stock prices is examined. Alsothe simultaneous relationship between monetary policy and the exchangerate is investigated. Multivariate relationships among monetarypolicy stock prices and the exchange rate are examined by using variousmultivariate methods such as the VECM VAR VARX and VARGARCH.The literature on measuring the reaction of monetary policy to macroeconomicvariables or vice versa has focused either on a single equation of monetaryresponse which is subject to the simultaneity bias problem or the VARanalysis which is subject to the heteroscedasticity problem. We employ theITH method to estimate the reaction of monetary policy to stock prices andthe reaction of monetary policy to the exchange rate. The ITH method overcomesthe simultaneous bias problem and it uses heteroskedasticity to estimatethe parameter of interest. The book is addressed to professionals Ph.Dand Master's students in the fields of economics and finance.