| dc.description.abstract | This paper aims to evaluate the impact of domestic monetary policy shocks on Norwegian
stock prices, as well as the impact in a historically low interest rate environment.
Consequently, the analysis is comprised of ( l ) the baseline model from 1991:Ml to 2019:M6
and (2) the model following the financial crisis from 2009:M6 to 2019:M6. Building on Neri
(2004) and Bjornland (2009), a structural vector autoregression (SVAR) with short-run
restrictions and Cholesky decomposition is utilized. The estimated models consist of the
oil price, inflation, output, three-month interest rate, trade-weighted exchange rate index,
and stock prices. Impulse responses and variance decomposition are used to evaluate the
impact of the monetary policy shocks.
Consistent with prior research and theory, the results of the baseline model indicate a
significant negative relationship between a change in the three-month interest rate and
stock prices. In particular, following a 100 basis points decrease in the three-month interest
rate (Nibor), stock prices (OSEBX) increase by l percent on impact and 2 percent after
six months. Moreover, the monetary policy shock accounts for slightly less than 10 percent
of the variations in stock prices after six months and roughly 20 percent after two years.
These results are relatively robust to different specifications. Examining the model from
mid-2009 to mid-2019, a decrease of 100 basis points in Nibor increases stock prices by 0.5
percent on impact, with the effect gradually waning over time. Therefore, the effectiveness
of the monetary transmission mechanism to stock prices appears to have diminished when
interest rates have been historically low. The results indeed provide updated validity to
previous literature and valuable insight into the monetary policy transmission mechanism
in Norway. | en_US |
