Monetary Policy and Stock Market Dynamics: An Empirical Perspective

Abstract

This study examines the influence of monetary policy on stock market performance and activity in Bangladesh, focusing on the Dhaka Stock Exchange (DSEX) index, using monthly data from August 2012 to June 2024. The regression analyses incorporate key monetary variables: the 91-day treasury bill rate, broad money supply, and Consumer Price Index (CPI). The first model reveals that the current month's DSEX index is strongly dependent on the previous month's index level, with the 91-day treasury bill rate showing a significant negative correlation, the broad money supply exhibiting a positive relationship, and the CPI indicating a negative association with market performance. The second model demonstrates that both the 91-day treasury bill rate and CPI negatively impact market turnover, while broad money supply has a positive effect. These findings underscore the crucial role of monetary policy in shaping stock market dynamics in Bangladesh, providing valuable insights for policymakers and investors in emerging markets.