Journal Title

Review of Economics & Finance

Publication Date



This paper investigates the relationship between the US monetary base and the five largest equity indices of the world. The mainstay of the study is the vector autoregressive approach (VAR). Analyzing impulse response functions shows strong support for the notion that the US monetary base is associated with movements in the major equity markets. For instance, positive shocks to the monetary base in the US, are responsible for positive changes in the world equity markets that may last up to six months. Examining impulse responses of equity indices from a Markov Switching VAR, which takes regime changes into account, confirm these findings. Furthermore, we show that equity responses to the positive shocks to the monetary base may be much higher than those to negative shocks. We conclude the US monetary base, and quantitative easing may have contributed to a positive business and credit climate in advanced economies of the world.

Author Supplied Keywords

Quantitative easing, Equity markets, Markov switching VAR, Granger causality


Stock exchanges; Quantitative easing (Monetary policy)--United States

Publication Information

Archived version is the final published version.



Document Type

Journal Article