Response of Spanish stock market to ECB monetary policy during financial crisis

Abstract

The present paper analyzes the effects of ECB monetary policy on the Spanish stock market returns. The data sample run all over the euro period: from January 1999 to December 2014. This period is split into two well-defined sub-periods based on the structural change brought about by the financial crisis in August 2007. Spanish stock market returns are approximated by the returns of the selective index Ibex 35 while monetary policy of the Eurozone is measured by the nominal target interest rate on the last day of the month. With regard to the methodology, as I am interested in the long-term relationship between the two variables aforementioned, a structural vector autoregressive (SVAR) model. The results show that monetary policy shocks have a considerable effect on the Spanish stock market returns in the long run. The results also show that monetary policy shocks of the ECB monetary policy lead to a different long-term effect in the pre-crisis period and the post-crisis sample.