The Share of Monetary Policy Transmission Channels in the Tehran Stock Exchange Price Index

Abstract

Economic knowledge about the channels of monetary policy affecting the stock price index helps central banks to improve their assessment of economic conditions. Also, understanding the relative importance of transmission channels allows monetary authorities to foresee the outcomes of this mechanism, thus they can direct the monetary policy through the desired channel. In order to achieve this aim, a vector autoregressive model and seasonal data from 1997 to 2017 have been utilized. The results reveal that the monetary policy can influence the Tehran Stock Exchange price index, but it can not be taken as a determinant variable. The findings confirm that as a result of monetary base shocks, on average, exchange rate channel and asset price channel have the largest share in transferring monetary effects respectively, and credit channel has the least share in the stock price index.

Keywords

• monetary policy
• stock exchange
• stock price index
• monetary transmission mechanism channels
• vector autoregressive model.