IS MONETARY POLICY NEUTRAL IN RELATION TO STOCK RETURNS AND/OR VOLATILITY?

IS MONETARY POLICY NEUTRAL IN RELATION TO STOCK RETURNS AND/OR VOLATILITY?

• Author
• Joilson Giorno
• Co-authors
• Adilson Padovan Junior , Isadora Abila Tarosso
• Abstract

• The main objective of this paper is to learn about the monetary policy effects on the B3 return and volatility. Here, monetary policy is proxied by the market interest rate expectation measured by the Brazilian Central Bank. The B3 returns and volatility are daily ones and discounted by the average daily inflation rate. The monetary policy effect on B3 average daily returns is done by testing the Granger causality between them and estimating GARCH models: S-GARCH, E-GARCH, and GJR-GARCH. The results showed that the monetary policy is neutral under Granger causality. Nonetheless, under GARCH estimates, B3 returns as expected are diminished by the monetary policy, but with no effect on its volatility. In other words, expected interest rate changes are well anticipated by the market, which is highly beneficial.

• Keywords
• Monetary Policy; Volatility; Ibovespa; GARCH.
• Subject Area
• Econometrics and Numerical Methods

Back Download