Impact of monetary policy on stock markets of developed countries

This article is devoted to the study of the impact of monetary policy on the development of the stock market in developed countries; within the framework of this article, we examined the development of the stock markets of the EU countries. Choosing the factors that can affect the development of the securities market, we took into account the peculiarities of modern monetary policy aimed at controlling the economies of developed countries from conditions in strategic commodity markets and inflation rates, dollar and euro.

Modeling the development process of the stock market in the EU countries can be carried out on the basis of the use of economic and mathematical methods. In particular, we carried out a correlation-regression analysis of the dependence of the profitability of the stock market in the EU countries on a number of macroeconomic factors. One of the theoretical justifications for the influence of monetary policy on stock returns may be the credit channel mechanism, divided into the balance channel and the bank credit channel. First, a negative shock to monetary policy increases borrowing costs and lowers the value of a firm’s assets, which can serve as collateral for new loans. This reduces access to credit and, in general, to any type of external borrowing, which leads to the fact that firms are forced to reduce the level of investment. Then the ultimate consequences of the shock can be a decrease in cash flows and profit margins. A somewhat different situation is characteristic of the bank credit channel: restrictive loans force banks to reduce the supply of loans and raise rates. It also has a negative impact on firms’ cash flow, stock returns.

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