The impact of monetary policy on stock markets of Japan, USA and UK

          There are the various constructs that are adopted for measuring the performance of all countries which are selected as sample in this study as Japan, United Satiates of America (USA) and United Kingdom (UK). The dynamics of each country’s economic performance can be easily captured by these constructs which are; inflation, output gap, unemployment and IT. The research sturdy is conducted by using the secondary which is leading towards the preexisting data that is used for another projects. Both of the research method are used in this study as quantitative and qualitative. In order to attain the final results the sector data is used. Particularly, time series data is used. The datasets are between-2018 and collected as quarterly. This study discusses about the 2008 FED crisis and there is comparisons between three countries in the form of before and after 2008(Kibbe, 2011).

The performance of the country is affected by the monetary policy as well as stock market is one of the most important major indicators that can affect the country’s performance(Kerongo Maatwa Meshack, 2016). The country’s economic performance variables inflation rate, output growth and real exchange rate is effecting the monetary policy and due to this stock markets are also effected. E-views is used to analyzing the data because it’s referred as the one of the most important and authentic software for analyzing the time series data(Eviews, 2019). It is one of the ideal packages to efficiently and quickly managing data.  E-views used to perform statistical analysis and econometrics.  This tool is also used for model simulations and generating forecast. Tables for publication and high quality graphs can be generated by using this software. This tool is used for inclusion and various other applications

Empirical strategy the impact of monetary policy on stock markets of Japan, USA and UK

        The empirical strategy is commonly followed by the equation of regression which is also known as the estimation equation. It can be explains about the intercepts as what the person is thinking about the x and y variables, particularly for that at where Y is the dependent variable and X is the independent variable. The Structural Vector Auto Regression (SVAR) is applied on this data. For each countries the impulse rate functions is estimated by utilizing the data for particular period of 1990-2018. The first difference of algorithm is the growth rate. The order of the variables in the VAR model is similar to the studies of (Chuku, 2009).

Stationary Test of the impact of monetary policy on stock markets of Japan, USA and UK

        Stationary Test is the one of the most important tests which is used to measure the effectiveness and authentication of the data.This tests tells about either regression can be applied on the particular data or not.  If the significance level is less than 0.05 it shows data is accurate for regression analysis. As depicted in the study of the (Lee, 2010)

The effects of monetary policy on Stock markets of Japan, USA and UK

Interpretation of the impact of monetary policy on stock markets of Japan, USA and UK

The above given graph is representing the level of the Inflation, Output Gap, Unemployment and IT along with its years in Japan. The values are not constant in this graph for all of these variables. It represents the gradual and abrupt fluctuations. As in the above image the Output Gap remains between -1 to 2 during 1994- 2008. Meanwhile in 2009 there were abrupt fluctuations and the value of output Gap reached at -6 than it reached at 1 in 2010.  There is gradual fluctuations in the unemployment which shows unemployment’s is occur all time in Japan from 1994 to 2018. There is gradual fluctuation occurs in the inflation rate of the Japan during 1994 to 2018 but in 2009 it reached at -2 which shows the bad conditions of Japan meanwhile in 2014 it was 3 and the situation of country was good. These results are more similar with the study of (Gambacorta, 2014).

United Kingdom (UK)

The above given graph is representing the level of the Inflation, Output Gap, Unemployment and IT along with its years in UK. With the references of the study of(Miyao, 2002) the values are not constant in this graph for all of these variables. It represents the gradual and abrupt fluctuations. As in the above image the Output Gap remains 0 to 1.7 during 1994-2008. Meanwhile in 2009 there were abrupt fluctuations and the value of output Gap reached at -3 than it reached at -1.6 in 2010.  There is abrupt fluctuations in the unemployment which shows unemployment’s is occur all time in UK from 1994 to 2018. In 1994 the unemployment rate was 10. There is gradual fluctuation occurs in the inflation rate of the UK during 1994 to 2018 but in 2009 it reached at 4.2 which shows the good conditions of UK.  The stock market price as IT was least in UK as 1-2.

United Sates of America (USA)

The above given graph is representing the level of the Inflation, Output Gap, Unemployment and IT along with its years in USA. The values are not constant in this graph for all of these variables. It represents the gradual and abrupt fluctuations. As in the above image the Output Gap remains 0 to 2.1 during 1994-2000. Meanwhile in 2009 there were abrupt fluctuations and the value of output Gap reached at -3 than it reached at 0in 2018.  There is abrupt fluctuations in the unemployment which shows unemployment’s is occur all time in USA from 1994 to 2018. In 2010 the unemployment rate was 10. There is gradual fluctuation occurs in the inflation rate of the USA during 1994 to 2018 but in 2009 it reached at -1 which shows the good conditions of USA.  The stock market price as IT was least in USA as 1-2. As depicted in the study of (Caggiano, 2014)

Vector auto regression

Japan

United States of America

United Kingdom

Interpretation of the impact of monetary policy on stock markets of Japan, USA and UK

After conducting the regression analysis for all of these countries Japan, Uk, and USA it has been observed that one standard deviation of monetary policy is statically significant for all countries as for UK it is variants 0.5% from its mean value, in USA it variants 0.4% and 1.05% for Japan. The coefficients (inflation, output gap, and unemployment) values are 0.007516, 0.207719 and 0.762235 respectively. It shows that there is positive relationship among monetary policy and stick market price in Japan and the level of significance for two variables are less than 0.05 meanwhile for 0.9485 for inflation rate. It represents that there is positiverelationship among inflation rate and stock market price in Japan but not significant. As indicated in the study of (Kurihara, 2006). The value of the R square is 0.285089 it means due to the 1% change in IT (stock market price) inflation, output gap, and unemployment will be changed 28%.

The coefficients (inflation, output gap, and unemployment) values are 0.163609, -0.126177and -0.104735 respectively. It shows that there is positive relationship among inflation and stock market price in USA meanwhile output gap, and unemployment have negative relationship with stock market priceand the level of significance for all variables are less than 0.05. It represents that there is positive significant relationship among inflation rate and stock market price in USA but there is negative significant relationship among output gap, unemployment and stock market price. The value of the R square is 0.308955it means due to the 1% change in IT (stock market price) inflation, output gap, and unemployment will be changed 30% in United States of America(Roy, 2012).

The coefficients (inflation, output gap, and unemployment) values are -0.016956, 0.086012 and 0.145141 respectively. It shows that there is positive relationship among output gap, unemployment and stock market price in UK meanwhile inflation have negative relationship with stock market price and the level of significance for two variables are greater than 0.05 meanwhile for unemployment significant value is 0.0049. It represents that there is positive insignificant relationship among output gap and stock market price in United Kingdom but there is negative insignificant relationship among Inflation and stock market price in UK. Unemployment has positive significant relationship with IT (Stock market price). The value of the R square is 0.100192 it means due to the 1% change in IT (stock market price) inflation, output gap, and unemployment will be changed 10% in UK. The results are seemed as (Ioannidis, 2008)

Wald Test of the impact of monetary policy on stock markets of Japan, USA and UK

The above given tables is representing the analysis of the Wald Test in Japan. In order to the appearance of the variables the coefficients are assigned in the specificationsFor the PR terms the coefficients are labeled as C(2)=C(3)=0.5. It is indicated by the low probability values which is 0.000 that the null hypothesis is strongly rejected because it is equal to 0.5. Such kind of the results can carefully accepted without any extra analysis. It is reported by the above given analysis the standard error for C (2) is 0.116024 and C (3)is 0.073821. In the residual of the estimated equation the presence of theserial correlation indicated. The null hypothesis rejected in case of the uncorrected, serial correlation for residuals. Invalid statics inference for the coefficients of(De Maio, 2008).

The above given tables is representing the analysis of the Wald Test in USA.  In order to the appearance of the variables the coefficients are assigned in the specifications For the PR terms the coefficients are labeled as C(2)=C(3)=0.5. It is indicated by the low probability values which is 0.000 that the null hypothesis is strongly rejected because it is equal to 0.5. Such kind of the results can carefully accepted without any extra analysis. It is reported by the above given analysis the standard error for C (2) is 0.036893 and C (3) is 0.042790. In the residual of the estimated equation the presence of the serial correlation indicated. The null hypothesis rejected in case of the uncorrected, serial correlation for residuals. Invalid statics inference for the coefficients.

Interpretation of the impact of monetary policy on stock markets of Japan, USA and UK

The above given tables is representing the analysis of the Wald Test in UK.  In order to the appearance of the variables the coefficients are assigned in the specifications For the PR terms the coefficients are labeled as C(2)=C(3)=0.5. It is indicated by the low probability values which is 0.000 that the null hypothesis is strongly rejected because it is equal to 0.5. Such kind of the results can carefully accepted without any extra analysis. It is reported by the above given analysis the standard error for C (2) is 0.077510 and C (3) is 0.055271. In the residual of the estimated equation the presence of the serial correlation indicated. The null hypothesis rejected in case of the uncorrected, serial correlation for residuals. Invalid statics inference for the coefficients.

Interpretation of the impact of monetary policy on stock markets of Japan, USA and UK

The above said graph represents the annual data on the X-axis and the time period span from the year 1996 to 2018. The variables of interest include inflation, output gap and unemployment. The above graph belongs to JAPAN and it is containing the information against three parameters i.e., residual, actual and fitted. The graph values against these determinants demonstrate that they all are showing the same behavior i.e., they are gradually increasing or decreasing to a certain level against a specified year. The residual and the actual graphs have shown the abrupt fluctuations at certain points. For the year 2003, residual value got decreased and reached to a negative value (-1) from 2. For the year 2016, actual value got decreased and reached to 0 from 2.

Interpretation of the impact of monetary policy on stock markets of Japan, USA and UK

The above graph belongs to UK and it is also containing the information against three parameters i.e., residual, actual and fitted. The graph values against these determinants also demonstrate that they all are showing the same behavior i.e., they are gradually increasing or decreasing to a certain level against a specified year. There is no abrupt behavior for any parameter rather it is the gradual one. The fluctuation to the values of market shares is slow for every of the year.

References of the impact of monetary policy on stock markets of Japan, USA and UK

Caggiano, G. C. E. &. G. N., 2014. Uncertainty shocks and unemployment dynamics in US recessions.. Journal of Monetary Economics, 67(1), pp. 78-92..

Chuku, C. A., 2009. Measuring the effects of monetary policy innovations in Nigeria: A structural vector autoregressive (SVAR) approach.. African Journal of Accounting, Economics, Finance and Banking Research, 5(5).

De Maio, A. &. I. S., 2008. Coincidence of the Rao test, Wald test, and GLRT in partially homogeneous environment.. IEEE Signal Processing Letters, 15, , pp. 385-388..

Eviews, 2019. An Introduction to EViews. [Online]
Available at: https://www.eviews.com/home.html

Gambacorta, L. H. B. &. P. G., 2014. The effectiveness of unconventional monetary policy at the zero lower bound: A cross‐country analysis.. Journal of Money, Credit and Banking, 46(4), pp. 615-642..

Gregoriou, A. K. A. M. R. &. M. A., 2009. Monetary policy shocks and stock returns: evidence from the British market.. Financial Markets and Portfolio Management,, 23(4), pp. 401-410.

Ioannidis, C. &. K. A., 2008. The impact of monetary policy on stock prices. Journal of policy modeling, 30(1), pp. 33-53..

Kerongo Maatwa Meshack, M. W. N., 2016. THE EFFECT OF MONETARY POLICY ON FINANCIAL PERFORMANCE OF THE COMMERCIAL BANKS LISTED ON THE NAIROBI SECURITIES EXCHANGE. International Journal of Finance and Accounting, Vol.1(1), pp. 74 - 87,.

Kibbe, M., 2011. The Federal Reserve Deserves Blame For The Financial Crisis, s.l.: forbes.

Kurihara, Y., 2006. The relationship between exchange rate and stock prices during the quantitative easing policy in Japan.. International Journal of Business, 11(4), p. 375..

Lee, C. C. L. J. D. &. L. C. C., 2010. Stock prices and the efficient market hypothesis: Evidence from a panel stationary test with structural breaks.. Japan and the world economy, 22(1), pp. 49-58..

Miyao, R., 2002. The effects of monetary policy in Japan.. Journal of Money, Credit and Banking,, pp. 376-392..

Roy, A. G., 2012. US Foreign Indebtedness, Monetary Policy, and Economic Growth.. Journal of Economic & Management Perspectives, 6(2), pp. , 196.