Impact of monetary policy on stock prices: looking at the banking sector and the manufacturing sector of the Nairobi securities exchange.

Abstract

This paper analyses the impact of monetary policy on asset prices and further goes on to check whether the impact is of similar magnitude in both sectors. The sectors that have been chosen are the banking sector and the manufacturing sector which are present in the Nairobi securities exchange. These sectors were chosen with the intuition that they are the quickest to show effect of monetary policy. Monetary policy therefore affects its returns on these sectors and finally asset prices. The paper uses panel data to carry out the analysis as the interbank rate which is the proxy for monetary policy is constant on all assets but changes with time while share prices across the sectors are different and also vary with time.