The stock market rises as a result of expansionary economic policies since they boost economic activity. Monetary and fiscal policies can be used by policymakers to carry out expansionary policies. It is usually used when inflationary pressures are low and the economy is about to enter a recession.

Fiscal expansionary policies will raise employment and aggregate demand. More spending and greater levels of consumer confidence follow from this. Stocks rise as a result of these initiatives since they boost corporate profits and sales.

When it comes to boosting consumer spending and economic activity, fiscal policy is quite successful. Its transmission method is straightforward. The government either invests the money on stimulus projects or borrows money from its surplus to offer tax breaks to consumers.
The transmission process is more convoluted in terms of money. Instead of focusing on increasing demand, expansionary monetary policy aims to improve financial circumstances. Reducing the cost of money will result in an increase in the money supply, which will drive down borrowing and interest rates.

Large multinational firms, which comprise the majority of the main stock market indices, including the Dow Jones Industrial Average and S&P 500, stand to gain the most from this. They have enormous debt because of their size and large balance sheets.
Lower interest rate payments directly benefit the bottom line and increase profitability. Low-interest rates encourage businesses to repurchase stock or pay dividends, which is good for stock values as well. Asset prices often perform well in an environment when the risk-free rate of return is rising, especially those of income-producing assets like dividend-paying equities. What is fundamental analysis? This entails assessing the economy's general conditions, including monetary policy, employment trends, and inflation.

Because of decreased interest rate payments, expansionary monetary policy also benefits consumers, strengthening their balance sheet in the process. Additionally, when finance prices come down, so does the marginal demand for large purchases like homes or cars. This bodes well for businesses in these industries. Monetary stimulus also helps dividend-paying industries including utilities, consumer staples, and real estate investment trusts.
The choice between expansionary monetary policy and fiscal policy is obvious in terms of what is better for equities. Monetary policy that expands is preferable. Wage inflation brought on by fiscal policy reduces business profitability. A portion of the revenue gains are countered by this decline in margins. Wage inflation benefits the actual economy, but it has a negative impact on corporate profits.

Wage inflation is unpredictable in the context of monetary policy because of the transmission mechanism. One recent instance of how monetary policy affected equities came along during the Great Recession, when the Federal Reserve began quantitative easing and slashed interest rates to zero. In the end, the central bank added securities valued at $3.7 trillion on its balance sheet. One of the most effective instruments available to policymakers for influencing the economy to promote price stability and sustained economic growth is monetary policy. The influence of policy-induced changes in policy instruments on production, price level, employment, and other macroeconomic variables is described by the monetary transmission mechanism, as shown by Ireland (2010). To impact the economy, which experienced political instability until 2002, policymakers can use a variety of instruments, including aggregate money (M1, M2, or M3), nominal interest rates, non-borrowed reserves, and spread. Turkey has enjoyed a stable administration since the Justice and Development Party (AKP) was elected in 2002, in contrast to other developing nations. Consequently, one of the longest sample periods for obtaining trustworthy data for the Turkish economy free from political turmoil would be the AKP era. Specifically, I use a structural vector autoregression (SVAR) methodology to evaluate the asset pricing transmission channel of monetary policy for the Turkish economy from 2005:M1 to 2016:M12, both at the aggregate and sectoral levels. The date of 2005:M1's inception is determined by the accessibility of data on sectors. Previous studies use stock market indexes at the aggregate and sectoral levels by omitting the exchange rate, or they employ VAR models by excluding stock market variables such as output, price level, exchange rate, aggregate money, and interest rate. The model used in this study employs several policy tools and incorporates output, price level, currency rate, interest rate, and stock market indices at both the aggregate and sectoral levels. Every piece of information was gathered from the International Monetary Fund's July 2013 edition of International Financial Statistics. The share price, which uses 2005 as the base year, represents SP. One indicator of fiscal policy that is often employed is the ratio of government deficits to GDP. The policy interest rate is chosen to be represented by the money market rate. MY is represented by the M3 money-to-GDP ratio. Because real GDP and some variables have a high degree of multicollinearity, which causes a change in signs and the insignificance of some coefficients, industrial production is utilized to represent actual output. For EX, the nominal effective exchange rate serves as a representation. Appreciation is shown by a rise, and vice versa. The percentage change in the consumer price index (CPI) is used to calculate INF.

The stock index and the money supply to GDP ratio show a bell-shaped quadratic relationship, according to an analysis of the sample data. This means that a higher money supply to GDP ratio would initially raise the stock index and then decrease it after a critical value of the ratio is reached. These time series variables have a stable long-term connection and are cointegrated as a result.