The response of the Spanish stock market to monetary policy actions: Effect of the crisis
In this paper we analyze the effects of ECB monetary policy on the Spanish stock market returns. Our data sample cover all the euro period: from January 1999 to December 2013. This period includes two well-defined sub-periods based on the structural change brought about by the financial crisis in August 2007. Spanish stock market returns are approximated by the returns of the selective index Ibex 35 whilst monetary policy of the Eurozone is measured using the real interest rate on the last day of the month, computed as the difference between the interest rate nominally determined by the monetary authority and the inflation rate recorded at the time. In regard to the methodology, as we are interested in the long-term relationship between the two variables aforementioned, we use a structural vector autoregressive (SVAR) model as Bekaert et al. (JME, 2013) and Nave and Ruiz (SSRN, 2013) did in similar contexts. Our results in the short term confirm for Spain those obtained by Crowder (JRF, 2006) for U.S. and Bohl et al. (Int Financ, 2008) for the euro area, i.e., an expansionary monetary policy leads to improved yields on equity markets. But beyond that, our results show that monetary policy shocks of the ECB monetary policy leads a long-term effect much higher in the pre-crisis period than in the whole sample. These results are confirmed when we use the GDP as a control variable. Based on this results we confirm the variability in the response of the Spanish stock market to the ECB monetary policy actions depending on the economic cycle stages.