Nonlinear effects of monetary policy on stock returns in a smooth transition autoregressive model

Kuang-Chung Hsu and Hui-Chu Chiang

The Quarterly Review of Economics and Finance, 2011, vol. 51, issue 4, 339-349

Abstract: This paper employs smooth transition autoregressive (STAR) models to investigate the nonlinear effect of monetary policy on stock returns. The change in the Federal funds rate is used as an endogenous measure of monetary policy, and the growth rate of industrial production is also considered in the model. Our results show that the relationship between the monetary policy and excess returns on stock prices is positive and nonlinear. A decrease in the Federal funds rate causes a larger increase in excess returns if excess stock returns are located in the extreme low excess returns regime.

Keywords: Monetary policy; Stock returns; STAR model (search for similar items in EconPapers)
JEL-codes: E44 E52 G10 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:51:y:2011:i:4:p:339-349

DOI: 10.1016/j.qref.2011.08.003

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