This paper analyses the relationship between monetary policy and the stock market with the aim of gaining new insights into the transmission mechanism of monetary policy. The empirical findings shed light on the importance of stock prices for money
demand and therefore provide useful nformation to monetary authorities deciding on policy actions. A technique developed by Wickens and Motto (2001) for identifying
shocks by estimating a VECM for the endogenous variables is employed. The
reported evidence suggests that stock markets play a significant role in the money
demand function
