Monetary Policy and Asset Prices: A Jumps-Based Approach to Identifying Monetary Surprises
45 Pages Posted: 10 Sep 2015 Last revised: 9 Feb 2019
Date Written: February 6, 2018
A large literature measures the effects of monetary policy shocks on asset prices. We promote a data-driven approach to designating monetary surprises via econometric tests for asset price jumps. Applying these tests, we identify the specific Fed communications that generate surprises. Alternative Fed communications, including minutes releases, speeches, and testimony, drive a significant fraction of surprises. We analyze the jump dependence of asset reactions to monetary news. Risky asset reactions weakly correlate with Treasury reactions, especially in recent years. Our evidence highlights the importance of announcement-specific variation in the cross-sectional pattern of asset reactions to monetary news.
Keywords: monetary policy, asset prices, jumps, event study, jump dependence
JEL Classification: G1, E5, C22
Suggested Citation: Suggested Citation