Monetary Policy and Asset Prices: A Jumps-Based Approach to Identifying Monetary Surprises

45 Pages Posted: 10 Sep 2015 Last revised: 9 Feb 2019

See all articles by James A Johnson

James A Johnson

University of Georgia, C. Herman and Mary Virginia Terry College of Business, Students

Bradley S. Paye

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

Date Written: February 6, 2018

Abstract

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

Johnson, James A and Paye, Bradley S., Monetary Policy and Asset Prices: A Jumps-Based Approach to Identifying Monetary Surprises (February 6, 2018). Available at SSRN: https://ssrn.com/abstract=2657686 or http://dx.doi.org/10.2139/ssrn.2657686

James A Johnson

University of Georgia, C. Herman and Mary Virginia Terry College of Business, Students ( email )

Athens, GA
United States

Bradley S. Paye (Contact Author)

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

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