Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: Editor-in-chief: Suman Banerjee
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Journal of Finance and Economics. 2018, 6(6), 237-241
DOI: 10.12691/jfe-6-6-5
Open AccessArticle

Post-Brexit Stock Market Volatility and European Central Bank Reaction Function

Nahid Kalbasi Anaraki1,

1Fort Hays State University, Economics Department

Pub. Date: December 14, 2018

Cite this paper:
Nahid Kalbasi Anaraki. Post-Brexit Stock Market Volatility and European Central Bank Reaction Function. Journal of Finance and Economics. 2018; 6(6):237-241. doi: 10.12691/jfe-6-6-5


The European stock markets experienced enormous volatility in stock markets post-Brexit era, which wasn’t observed before the shock. The volatility in financial markets has disturbed economic fundamentals including capital flow and economic growth in several European countries. To avoid such disturbances the monetary authorities have to implement a monetary reaction function by adopting an appropriate range for short-term interest rate consistent with the volatility of stock markets and depreciation of British pound. The monetary reaction function in this case shouldn’t be only based on traditional Taylor’s rule but also needs to take into account the volatility of stock markets and depreciation of pound versus major currencies. The goal of this paper is twofold. First, it tries to estimate the effects of Brexit on stock market volatility index for British FTSE, German DAX, and French CAC using econometric models and a dummy variable for post-Brexit. Second, it uses a Vector Auto Regression (VAR) model to stimulate the monetary reaction function of the European Central Bank (ECB) to find out how it may neutralize the adverse effects of stock market volatility on macroeconomic fundamentals.

Brexit stock market volatility Vector Auto Regression model (VAR) monetary policy reaction function Taylor rule currency depreciation European Central Bank

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