TOBB University of Economics and Technology - Department of Economics
October 1, 2009
TOBB University of Economics and Technology Department of Economics Working Paper No. 09-05
This paper investigates the factors that affect the covariance between the federal funds rate and stock returns. I estimate a VAR system and implement covariance decomposition analysis. Most of the covariance between the federal funds rate and stock returns is affected by changes in stock market and output. These results conclude that the Fed is actually targeting stock returns directly.