BI: Interest rate shock could kick-start stock exchange

“A surprise interest rate cut of one percent could result in a stock price increase of between seven and nine percent,” shows research study from BI Norwegian School of Management.

Norges Bank surprised most experts by cutting the interest rate by as much as 1.75 percentage points during the final interest rate meeting in 2008. Surprise interest rate changes like this, so-called interest rate shocks, can cause major changes in stock prices.

Professors Hilde C. Bjørnland and Kai Leitemo of BI Norwegian School of Management have conducted an extensive study of the interaction between U.S. interest rate decisions and the stock market (S&P 500) over a 20-year period from 1983 to 2002.

The results of the study are now being published in the venerable international science periodical Journal of Monetary Economics.

BI Norwegian School of Management has become one of the larger Higher Education Institutions in Norway and one of the largest business school in Europe.

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