European monetary policy and stock market Essay

European monetary policy and stock market - Essay Example The effect of global market and the integration of the financial markets shows the effect on the stock market and economy due to the changes in monetary policies have profound impacts with respect to defining the future of economics. It is evident that local stock markets would feel the effects of change in the monetary policies; however, the level of impact would be different in other regions - especially within different economic sectors that might not have same level of effect (Nuno & Claudio, 2002). Thus analysts and economists around the world believe that it is not only monetary policy and foreign policy that help to define market action but also the foreign economic policy that impacts the stock price and volatility of the stock market. From such an understanding, it must also be noted that it is the central bank that designs the monetary policy for any region in order to control the macro-economic factors and devise a wholistic strategy for the economy. It has been the volatility of the stock market that has increased the focus towards the role of central banks in helping to prevent or reduce the disruptive effects of the financial shocks on the economy (Bernanke, 1999). It is also required to be understood that role of stock prices should be defined and the monetary policy should take into account the stock prices; due to the fact that they whether are related or not to the fundamentals they can have a destabilizing effect on the economy. Many analysts represent he view that in order to ensure the long term success of the monetary policy price stability must be ensured; thus integrating role of stock market in to the monetary policy (Lawrence, et al., 2010). This integration would allow the central bank to preven t the volatility of the stock market and ensure economic stability. This has especially been true since the