THE EFFECT OF MONETARY POLICY ON CAPITAL MARKETS IN DEVELOPING COUNTRIES
Keywords:
Monetary Policy, Capital Markets, Emerging Markets.Abstract
Monetary policy is recognised as having a significant influence on the economy, particularly through its impact on the capital market. The study conducted in this research uses the literature research method. The results found that the effects of interest rate changes and significant increases in liquidity often have a short-term positive impact on stock market indices. However, the findings also emphasise the need for policymakers to consider complicating factors such as global political or economic instability and high inflation expectations, which may reduce the effectiveness of monetary policy. Finally, the findings underline that the room for manoeuvre of monetary policy can be limited in a low interest rate environment, which calls for a more innovative and sensitive policy approach to external conditions.
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