Impact Impact of Monetary Policy on Post Crashed Stock Market Performance: Evidence from Dhaka Stock Exchange

Impact of Monetary Policy on Post Crashed Stock Market Performance: Evidence from Dhaka Stock Exchange

Abstract

This paper investigates the impact of monetary policy variables on the
performance of recent post crashed stock market of Bangladesh using
monthly data from 2011. As a dependent variable Dhaka Stock Exchange
(DSE) General Index (DGEN) has been used as a proxy for stock market
performance and three independent variables have been used namely money
supply, repo rate and inflation rate as proxies for monetary variables. The
study used econometric techniques of measuring the functional relationship
between monetary variables and market index using the concept of Unit root
test and Cointegration technique. Causal relationships have been
investigated using Granger causality test. The coefficients of all the
explanatory variables are found statistically significant. By employing
Cointegration technique it is observed that in the volatile stock market of
Bangladesh, a one percent increase in inflation, in money supply and in repo
rate contributes 2.61and 12.98 percent decrease and 6.08 percent increase in
the market index respectively. Finally, Granger causality analysis suggests
the existence of unidirectional causality from inflation to DGEN index and
money supply to DGEN index.