The Impact of Monetary Policy Shocks on the Fluctuation of Stock Price Index in Iran

The purpose of this paper is investigation of monetary policy shock effects on stock market price index in Iran. We used legal deposit ratio, banks debt to central bank and private sector debt to banks as measurements of monetary policy. Also, Tehran stock Exchange Price Index (TEPIX) was used as an index of stock market changes. Portfolio theory and asset price channel are our theoretical view of subject. Also we added house price index and exchange rate to our variables because of their role and importance in people portfolio. Quarterly data from 1370q1 to 1389q3 used for this study Cointegration and Vector Error Correction Model were applied for statistical inference. For investigating shocks effect we used Impulse Response Function (IRF) and Variance Decomposition (VD). Our results showed that monetary policy has positive but narrow effect in stock market changes. Among monetary variables, bank debt to central bank is more powerful than other variables affecting stock price index.