On the Linkage between Monetary Policy and MENA Stock Markets

Abstract Relatively little empirical evidence is available that estimates the relationship between asset price movements and monetary policy measures. This paper, which is the first study that focuses on the linkage between monetary policy and stock market prices, aims at analyzing the interaction between monetary policy and asset markets in eight MENA countries. The countries considered in this study are: Bahrain, Egypt, Jordan, Morocco, Oman, Saudi Arabia, Tunisia, and Turkey. To this end, VAR methodology is used. The nature of the relationship between asset price movements and monetary policy is currently a hotly debated topic in macroeconomics. The chief findings put forward by this study are the following: (i) In Bahrain, Oman, Jordan and Saudi Arabia monetary policy seems to have a significant impact on stock market returns. (ii) The monetary policies of Tunisia, Morocco and to a less extent those of Egypt do not significantly impact on equity prices. (iii) Better still, monetary policies’ reactions to stock market price movements are far from being homogenous across countries. While Saudi Arabian and Jordanian monetary authorities respond vigorously to an increase in stock market returns, the other countries do not seem to exhibit any reaction. The paper attempts to provide some explanations. Arabic Abstract: