The relationship between stock price indexes and monetary policy before and after the financial crisis of 2008: An application on OECD countries

In this study, whether there is a connection between share price indexes and Money policies of 13 OECD Countries with high income and 8 OECD countries with mid-high and mid-low countries was analysed for the period between pre-2008 financial crisis years (2003-2006) and post years (2010-2013) by means of dynamic panel regression models.Firstly, CADF and CIPS panel unit root tests were used to see if the series contain unit root in the model where share prices index is a dependant variable and where short term interest rate, interbank overnight interest rate, and the size of M1 money supply as well as M3 money supply are explanatory variable. Whether there is a long term relationship between the variables making up the model was analysed with the help of Durbin-Hausman panel co-integration test. In the result of co-integration tests, it is concluded that there is a co-integration relationship between share price index, short-term interest rates, interbank overnight interest rates, and M1 money supply as well as M3 money supply. Finally, whether there is causality relationship between the variables used in the study was analysed by the causality test developed by Dumitrescu-Hurlin. The results of the analysis Show that there is a bidirectional causality relationship between share price index and short-term interest rates on the overall of OECD countries with High Income as well as Mid-High/Mid Low Income for the pre-crises period of 2008. Moreover, it was found that there is a mono directional relationship from share prices indexes towards interbank interest rates and from M3 money supply towards share price index. It was found that there is a bidirectional causality relationship between share price indexes and M3 money supply. For the pre and post-crisis period, it was found that there is a mono directional relationship from share price index towards M3 money supply in OECD countries with Mid-High and Mid-Low Income. Keywords: Share Price Index, Short-Term Interest Rates, Interbank Overnight Interest rates, M1 Money supply, M3 money supply, OECD, Dynamic Panel Data Models.