Posted: November 19th, 2022

Granger Causality between Monetary Policy and Stock Market Volatility

Granger Causality between Monetary Policy and Stock Market Volatility
MSc Dissertation Abstract submission
Title
The thesis title should give a clear indication of the topic being studied.
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stages of your research. Your future employer may ask you about the topic of
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which includes specification of the study question(s), in relation to previous
research and to the literature.
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stay focused during your research
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 Theoretical Framework and Background Information: the proposal should
discuss the major theoretical premises and the salient concepts which underlie
the problem or question(s). The proposal should then outline a framework,
based on literature, for analyzing the problem and question(s).
 Design and Methods The questions and/or hypotheses for the thesis are
formulated clearly and in such a way that all the study variables and their
anticipated relationships are specified. Procedures should be clearly outlined,
including details of about data (for empirical projects) and resources (for
literature review) that will be used.
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needed to collect your data?).
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for the study design should be described.
 Work Plan: The proposal should include a detailed work plan, with estimates of
time needed to complete each phase of the proposed research.
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 Wordcount: min 500 – max 750 words
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Finance and accounting
Topic:
Monetary Policy and Stock Market(Data Analysis for Research)
Follow the “Abstract Requirement” （see attached）step by step. Also read the other relevant materiel so far I have. This dissertation (plan to 7500 words) must have data analysis with ‘Eviews’. The variable data are “interest rate, inflation rate, gdp growth rate, unemployment rate, stock market volatility. So I need the writer who is enable the skills of Eviews in finance to give me a 500 words abstract to guide me to do the dissertation in future.
MONETARY POLICY AND STOCK MARKET (Data Analysis for Research)
ISSUES: Monetary policy has an important influence on inflation. For instance in the US when the federal funds rate is reduced, the resulting stronger demand for goods and services tends to push wages and other costs higher, reflecting the greater demand for workers and materials that are necessary for production. In addition, policy actions can influence expectations about how the economy will perform in the future, including expectations for prices and wages, and those expectations can themselves directly influence current inflation. In 2008, with short-term interest rates essentially at zero and thus unable to fall much further, the Federal Reserve undertook non-traditional monetary policy measures to provide additional support to the economy. The contribution that monetary policy makes to sustainable growth is the maintenance of price stability. Theory and empirical evidence in the literature suggest that sustainable long term growth is associated with lower price levels. In other words, high inflation is damaging to long-run economic performance and welfare.
Selected Reading: • Bernanke, B. S. and Gertler, M. (2000). Monetary policy and asset price volatility. NBER WP n. 7559. • Castelnuovo, E. (2007). Taylor Rules and Interest Rate Smoothing in the Euro Area, The Manchester School, 75(1): 1-16. • Gerlach, S., & Schnabel, G. (2000). The Taylor rule and interest rates in the EMU area. Economics Letters, 67(2), 165-171. • Taylor, J.B., 1993, December. Discretion versus policy rules in practice. In Carnegie-Rochester conference series on public policy (Vol. 39, pp. 195-214). North-Holland.

Institution

The nature of the relationship between monetary policy and stock market volatility remains an open research problem (Galí and Gambetti, 2015). While research has established the existence of a direct relationship between monetary policy indicators and stock market volatility, there are still challenges with the understanding of the nature of the relationship between the indicators (Rigobon and Sack, 2003). The main question that remains open relates to whether changes in monetary policy granger cause stock market volatility or whether stock market volatility granger causes monetary policy changes.
The purpose of the research is to explore the nature of the relationship between monetary policy and stock market volatility. In light of the research purpose, the study seeks to fully respond to the question;
What is the nature of the relationship between monetary policy and stock market volatility?
The specific objectives of the study include;
i. To explore the nature of the short-term and long-term relationship between stock market volatility and interest rates.
ii. To explore the nature of the short-term and long-term relationship between stock market volatility and inflation rates.
iii. To explore the nature of the short-term and long-term relationship between stock market volatility and GDP growth rate.
iv. To explore the nature of the short-term and long-term relationship between stock market volatility and unemployment rate.
The study will be anchored in the Taylor rule. The Taylor rule is a mathematical model created to provide guidance on setting of monetary policy based on the goals of attaining short-term stability in interest rates and long-term growth in the economy. The Taylor rule presents a linear model linking nominal interest rates to the stabilizing interest rate, inflation gap and output gap (Woodford, 2001). The model will therefore be important in exploring the short-term and long-term relationships among the variables includes in this research.
The study is designed as quantitative research, using data from the stock market, central bank, and department of labor. The source provide data for all the variables in the study. The variables include stock market volatility as the dependent variable and interest rates, inflation rates, GDP growth rates, and unemployment rates as the independent variables. The data will be tested in Eviews and Granger causality tests will be used in exploring the nature of the relationship between the dependent variable and independent variables. Linear regression analysis will be used in determining the predictive power of monetary policy on the stock market volatility.
The study will be conducted over a period of 8 weeks. The work plan includes extensive review of literature, both empirical and theoretical, in the first 2 weeks of the project. In week 3 the focus will be on developing the introduction and the methodology sections such that the complete project proposal will be available within the first four weeks of the project. In week 5 the focus will be addressing all comments from the supervisor on the research proposal. In weeks 6 and 7 the focus will be on data analysis and presenting the research report for final comments which will then be addressed in week 8 and the final project report presented in the same week.

Reference List
Galí, J. and Gambetti, L., 2015. The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence. American Economic Journal: Macroeconomics, 7(1), pp.233-57.
Gospodinov, N. and Jamali, I., 2015. The response of stock market volatility to futures-based measures of monetary policy shocks. International Review of Economics & Finance, 37, pp.42-54.
Rigobon, R. and Sack, B. 2003. Measuring the Reaction of Monetary Policy to the Stock Market. The quarterly journal of Economics 118(2), pp.639-669.
Woodford, M., 2001. The Taylor rule and optimal monetary policy. American Economic Review, 91(2), pp.232-237.

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