Monetary Policy Surprises and the Responses of Asset Prices: An Event Study Analysis

International Journal of Monetary Economics and Finance, Forthcoming

34 Pages Posted: 27 Jul 2017

See all articles by Yucheng Jiang

Yucheng Jiang

Gang Wang

College of Wooster - Department of Business Economics; Clemson University, College of Business and Behavioral Science, John E. Walker Department of Economics

Date Written: July 13, 2017

Abstract

The monetary policy shocks have been widely regarded to have effects on the financial markets. Before the 2008 financial crisis, the Federal Reserve adjusted the federal funds target rate to implement the monetary policy. This paper uses event studies to examine the relationship between the Federal Reserve’s interest rate decisions and the asset prices. We find that treasury bills and exchange rates of the developed countries were significantly influenced by the Fed’s unexpected monetary policy shocks from the year 1989 to 2008. However, in the same period, exchange rates of the emerging markets responded weakly to the policy surprises. We also observe that international equity markets and commodity prices were not sensitive to the rate decisions of the Federal Reserve. In addition, Treasury bill yields responded significantly to the anticipated and unanticipated rate decisions in both pre and post FOMC meeting days. We also show that the Fed’s unexpected monetary policy had significant 5-day post-announcement impacts on prices of almost all assets.

Keywords: Monetary Policy Surprises, Fed Fund Futures, Anouncement Effects

JEL Classification: E43, E52; G12, G14

Suggested Citation

Jiang, Yucheng and Wang, Gang, Monetary Policy Surprises and the Responses of Asset Prices: An Event Study Analysis (July 13, 2017). International Journal of Monetary Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3001627

Gang Wang

College of Wooster - Department of Business Economics ( email )

Wooster, OH 44691
United States

Clemson University, College of Business and Behavioral Science, John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

No contact information is available for Yucheng Jiang

Register to save articles to
your library

Register

Paper statistics

Downloads
50
Abstract Views
219
PlumX Metrics