Boston Fed paper examines stock price sensitivity to monetary policy
Sensitivity decreases as financial frictions increase
Stock prices of financially constrained firms become less responsive to changes in monetary policy if financial frictions such as the monitoring costs faced by investors increase, according to a working paper published by the Federal Reserve Bank of Boston.
In Financial frictions and the reaction of stock prices to monetary policy shocks, Ali Ozdagli attributes this relationship to the fact that monetary policy affects stock prices through the companies' access to external finance, and companies
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