Monetary Policy Without Moving Interest Rates: The Fed Non-Yield Shock

79 Pages Posted: 25 Jul 2024

See all articles by Christoph Boehm

Christoph Boehm

University of Texas at Austin

Niklas Kroner

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: July, 2024

Abstract

Existing high-frequency monetary policy shocks explain surprisingly little variation in stock prices and exchange rates around FOMC announcements. Further, both of these asset classes display heightened volatility relative to non-announcement times. We use a heteroskedasticity-based procedure to estimate a “Fed non-yield shock”, which is orthogonal to yield changes and is identified from excess volatility in the S&P 500 and various dollar exchange rates. A positive non-yield shock raises stock prices in the U.S. and around the globe, and depreciates the dollar against all major currencies. The non-yield shock is essentially uncorrelated with previous monetary policy shocks and its effects are large in comparison. Its strong effects on the VIX and other risk-related measures point towards a dominant risk premium channel. We show that the non-yield shock can be related to Fed communications and that its existence has implications for the identification of structural monetary policy shocks.

Keywords: Federal Reserve, Monetary Policy, Stock Market, Exchange Rates, Asset Prices, Risk Premia, Information Effects, High-frequency Identification

JEL Classification: E43, E44, E52, E58, F31, G10

Suggested Citation

Boehm, Christoph and Kroner, T. Niklas, Monetary Policy Without Moving Interest Rates: The Fed Non-Yield Shock (July, 2024). International Finance Discussion Paper No. 1392, Available at SSRN: https://ssrn.com/abstract=4905178 or http://dx.doi.org/10.17016/IFDP.2024.1392

Christoph Boehm (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

T. Niklas Kroner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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

Paper statistics

Downloads
40
Abstract Views
226
PlumX Metrics