Monetary Policy and the Stock Market Essay Example | Topics and Well Written Essays - 6000 words

Monetary Policy and the Stock Market - Essay ExampleMany papers hold in found that the extent to which pecuniary policymakers react to have a bun in the oven merchandise changes are often driven by other factors such as the rate of inflation and output gap. In most of the cases, extend commercialise changes are rarely the aspects which influence monetary policy. The present paper attempts to examine this very fact by means of employing least square methods. In order to assess this relation, Taylors rule has been modified accordingly. The output however, yielded does non depict a highly significant association between stock market fluctuations and the dependent variable, monetary policies which is duplicated by Federal Funds Rate. 1 - Introduction Stock market fluctuations often decide the fiscal state of an miserliness. These, in turn, could act as the decisive forces behind the monetary policy framework of an frugality. Movements accommodate by stock market indices often reflect the behaviour patterns exhibited by many essential stinting variables. Stock market indices aptitude be regarded as a mirror image of the way their components tolerate over time. In case that these components exhibit an average upward trend, the implication is that of a rising stock price business leader, while they display a downward trend implies the stock prices moving down on an average. Movements of stock prices often indicate the extent to which an economy is soaring. High figures of stock price indices in an economy indicate upward inflationary trends in the economy. Hence, it is important to keep a note of the fluctuations that the stock market indices depict. Inflationary pressures are rather regarded as harmful for the economy and hence they often are unbroken under control by the monetary policymakers of an economy. Thus, it can be argued...Stock market fluctuations often decide the pecuniary state of an economy. These, in turn, could act as the decisive forc es behind the monetary policy framework of an economy. Movements qualified by stock market indices often reflect the behaviour patterns exhibited by many essential economical variables. Stock market indices might be regarded as a mirror image of the way their components direct over time. In case that these components exhibit an average upward trend, the implication is that of a rising stock price index, while they display a downward trend implies the stock prices moving down on an average. Movements of stock prices often indicate the extent to which an economy is soaring. High figures of stock price indices in an economy indicate upward inflationary trends in the economy. Hence, it is important to keep a note of the fluctuations that the stock market indices depict. Inflationary pressures are rather regarded as harmful for the economy and hence they often are unplowed under control by the monetary policymakers of an economy. Thus, it can be argued that higher the stock market ind ex of a nation , greater will be the inflationary pressure upon the economy. This tempts the monetary policymakers to frame strategies for linguistic rule of the same. This inflationary pressure could actually lead to a rise in the velocity of money .This , in turn, could actually result to higher economic activities and at the same time leads to price hikes. These price hikes might lead to depreciation in the rate of exchange and thus eventually reduce the inflow of irrelevant direct investments. This is because overseas investors are no longer allured by the thought of earning higher amounts in repayment.