Working Paper BETA #2016-14

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Title : Does Central Bank Independence Affect Stock Market Volatility?

Author(s) : Stephanos Papadamou, Moïse Sidiropoulos, Eleftherios Spyromitros

Abstract : This paper addresses the issue of impacts of central banks’ conservativeness/independence on stock market volatility. Using a simple theoretical macroeconomic model, we analytically find a positive link between stock prices volatility and central bank conservativeness. By applying panel data analysis on a set of 29 countries from 1998 to 2005, sufficient evidence for this positive relationship is provided using two different measures of stock market volatility.

Key-words : Central bank independence, stock market volatility, panel data.

JEL Classification : E52, E58, G1.