25 Pages Posted: 15 Jul 2010
Date Written: May 19, 2010
I use a Bayesian vector autoregressive (VAR) model to investigate the impact of monetary and technology shocks on the euro area stock market in 1987-2005. I find an important role for technology shocks, but not monetary shocks, in explaining variations in real stock prices. The identification method is flexible enough to study the effects of technology news shocks. The responses are consistent with the idea that news on technology improvements have an immediate impact on stock prices. These findings are robust to several modeling choices, including the productivity measure, omitted variables, and the identifying restrictions.
Keywords: Monetary Policy, Technology Shocks, News, Stock Prices, Bayesian VAR
JEL Classification: E44, E52, G1, O33
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