Monetary Policy and its Effects on Stock Markets Essay

fiscal Policy and its Effects on Stock Markets - Essay ExampleDespite claims that fiscal policy should not affect stocks, in that respect is recite that the policy send away affect real stock prices in the short run (Bernanke & Kuttner 2005) and to a fault an suasion that the nature of the monetary policy regime can affect the performance of asset markets over long-life horizons. It has excessively been observed that by altering the path of expected dividends, the discount rate or the comeliness premium is one of the puts of the monetary policy on stocks1 Observers of Financial Markets have noted that an unannounced decrease in the federal funds rate target leads to a rapid and positive reaction in stock prices thus implying the effect of the Monetary Policy on Stock Markets. Research methodological analysis - Our research methodology includes secondary data indicating the effect of policies on stock markets. We shall also examine the behavior of important macroeconomic and monetary policy variables during stock market booms which will lead us to brain the effect of macroeconmic policies like the Monetary Policy on Stock markets. The effects of Monetary Policy on Stock Markets.Monetary Policy Tools that affect stock prices Discount window Lendings - The Monetary Authority can directly change the size of bills supply by using the Discount Window tool. By calling in existing loans or extending new loans, the money supply in the country is regulated. When the money supply is ample, investors look to investments and when money supply is low, invetments are diluted to increase liquidity. Thus Discount Window Lendings influences stock prices.Reserve Requirement - A certain reserve of their assets is meant to be held by the Central Banks which is for withdrawals and the difference of opinion is normally invested in mortgages and loans. A change in the reserve... In this essay, the researcher aims tol ascertain the importance of the Monetary Policy an d its effect on the stock markets. Despite claims that monetary policy should not affect stocks, there is evidence that the policy can affect real stock prices in the short run and also an opinion that the nature of the monetary policy regime can affect the performance of asset markets over longer horizons. The research methodology includes secondary data indicating the effect of policies on stock markets. The researcher also examines the behaviour of important macroeconomic and monetary policy variables during stock market booms, which lead to understanding the effect of macroeconmic policies like the Monetary Policy on Stock markets. The researcher then concluds that early effects of the monetary policy can be observed when asset prices tend to focus on the impact of changes in liquidity on the demand for various assets that compromise the portfolio of the Private Sector. Ext stop periods of rapidly appreciating equity housing and other asset prices in the United States and elsew here since the mid 1990s have increased attention towards the effects of monetary policy on asset markets. The researcher also can conclude, that 20th ampere-second stock market booms typically were associated with the business cycle arising, when output growth was above average and ended as output growth slowed showing the effect of economic policies which affect stock markets and the stock markets globally are affected by Monetary Policy.