Market Confidence and Monetary Policy

38 Pages Posted: 2 Dec 2015 Last revised: 8 Dec 2015

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Valentin Haddad

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: December 7, 2015

Abstract

We study the ability of monetary policy announcements to influence interest rates at all maturities as well as asset prices more broadly. Using a novel methodology, we discover two distinct monetary policy shocks. The primary factor is a long rate factor which we find is related to aggregate uncertainty; the second factor is a traditional Fed funds short-rate shock. We show that the two factors have disparate effects on risky asset returns, with the long rate factor affecting the aggregate risk premium, and the Fed funds shock lowering inflation expectations and increasing the value premium. Our results highlight that monetary policy announcements influence market confidence even when there is no change in the stance of monetary policy.

Suggested Citation

Boyarchenko, Nina and Haddad, Valentin and Plosser, Matthew C., Market Confidence and Monetary Policy (December 7, 2015). Available at SSRN: https://ssrn.com/abstract=2697653 or http://dx.doi.org/10.2139/ssrn.2697653

Nina Boyarchenko (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7339 (Phone)
212-720-1582 (Fax)

Valentin Haddad

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
113
Abstract Views
989
rank
293,304
PlumX Metrics