The Stock Market Channel in the Monetary Policy Transmission Process

Abstract

The growing number of empirical studies proves the existence of the negative relations between short-term interest rates and the stock prices� It points to permeability of the stock market channel in the monetary policy transmission process; it also proves the strength of the central bank instrument which makes it possible to react to disadvantageous turn of events on financial markets (by providing liquidity, easier access to credit or restoring investors’ trust), or to excessive enthusiasm of investors� This confirms the importance of monetary policy in economic policy and is an argument for more frequent use of monetary tools rather than fiscal tools to affect economy� It mainly corresponds to countries with high and/or growing – decade after decade – public debt, as well as with strong impact of the public finance sector on GDP which limits possibilities and development perspective of respective economies as well as lowers flexibility of fiscal policy and its feature of supporting economic — ABSTRAKT —