What Explains the Stock Market's Reaction to Federal Reserve Policy?
Что объясняет реакцию фондового рынка на политику Федеральной резервной системы?
2005-05-03
SCID: 54.1/59rke3z5
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Federal funds rateequity pricesexpected excess returnsmonetary policystock market reaction
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Abstract (AI)
ABSTRACT This paper analyzes the impact of changes in monetary policy on equity prices, with the objectives of both measuring the average reaction of the stock market and understanding the economic sources of that reaction. We find that, on average, a hypothetical unanticipated 25‐basis‐point cut in the Federal funds rate target is associated with about a 1% increase in broad stock indexes. Adapting a methodology due to Campbell and Ammer, we find that the effects of unanticipated monetary policy actions on expected excess returns account for the largest part of the response of stock prices.
Key Findings
1
A hypothetical unanticipated 25-basis-point cut in the Federal funds rate target is associated with approximately a 1% increase in broad stock indexes.
2
The paper measures both the average stock-market response to monetary-policy changes and the economic sources underlying that response.
3
Using a methodology adapted from Campbell and Ammer, the study finds that changes in expected excess returns explain the largest share of stock-price responses to unanticipated monetary-policy actions.
Research Object
stock market equity prices in response to unanticipated Federal Reserve monetary policy changes
Research Subject
the magnitude and economic sources of stock-price reactions, particularly the role of expected excess returns
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2005-05-03
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