Monetary Policy and Stock Prices

21 Pages Posted: 23 May 2022

Date Written: May 13, 2022


Stock prices have recently fallen as inflation has risen and expectations of rate rises have grown. I assess how changes in monetary policy affect stock prices through a high-frequency approach across a panel of nine developed countries and the eurozone and accounting for changes in interest rates across the yield curve. I find that a 1 basis point increase in the five-year interest rate due to monetary policy changes lowers stock prices by 3.56 basis points. Movements in the short-term part of the yield curve drive the relationship. I estimate the degree to which increases in interest rates have lowered stock prices in recent months and how much further they could fall if rates continue to rise.

Keywords: monetary policy, stock prices, yield curve

JEL Classification: E44, G12, E52

Suggested Citation

Cotton, Christopher D., Monetary Policy and Stock Prices (May 13, 2022). Available at SSRN: or

Christopher D. Cotton (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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