IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v46y2014i9p985-995.html
   My bibliography  Save this article

Asset prices and expected monetary policy: evidence from daily data

Author

Listed:
  • Mehmet Ivrendi
  • Douglas K. Pearce

Abstract

This article explores the relationships among Libor, gold prices, the exchange rate, oil prices, fed funds futures prices and stock prices at a daily frequency. This article examines whether expected monetary policy, measured by changes in the prices of fed funds futures contracts, reacts to high frequency changes in asset prices and, in turn, whether asset prices respond to changes in expected monetary policy. The article reveals that there are statistically significant relationships between expected US monetary policy and shocks to Libor and exchange rates. It also reveals that there is no evidence of a systematic relationship between stock prices and expected monetary policy changes. Splitting the data into expansionary and recessionary periods using NBER dating, we find results for the expansionary periods that are very similar to the results for the entire period. For the periods of recession, we find little evidence of significant linkages between markets.

Suggested Citation

  • Mehmet Ivrendi & Douglas K. Pearce, 2014. "Asset prices and expected monetary policy: evidence from daily data," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 985-995, March.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:9:p:985-995
    DOI: 10.1080/00036846.2013.864038
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2013.864038
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2013.864038?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
    3. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    4. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    5. Piazzesi, Monika & Swanson, Eric T., 2008. "Futures prices as risk-adjusted forecasts of monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 677-691, May.
    6. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, September.
    7. James D. Hamilton, 1985. "Historical Causes of Postwar Oil Shocks and Recessions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 97-116.
    8. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
    9. Ivrendi, Mehmet & Guloglu, Bulent, 2010. "Monetary shocks, exchange rates and trade balances: Evidence from inflation targeting countries," Economic Modelling, Elsevier, vol. 27(5), pages 1144-1155, September.
    10. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    11. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 653-686.
    12. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    13. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    14. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    15. R. Scott Hacker & Abdulnasser Hatemi-J, 2008. "Optimal lag-length choice in stable and unstable VAR models under situations of homoscedasticity and ARCH," Journal of Applied Statistics, Taylor & Francis Journals, vol. 35(6), pages 601-615.
    16. Leduc, Sylvain & Sill, Keith & Stark, Tom, 2007. "Self-fulfilling expectations and the inflation of the 1970s: Evidence from the Livingston Survey," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 433-459, March.
    17. Jensen, Gerald R. & Mercer, Jeffrey M. & Johnson, Robert R., 1996. "Business conditions, monetary policy, and expected security returns," Journal of Financial Economics, Elsevier, vol. 40(2), pages 213-237, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yıldırım Mustafa Ozan & Yıldırım Ahmet Eren, 2017. "The Influence of Consumption and Investment on Unemployment in Turkey: A Svar Approach," Ekonomika (Economics), Sciendo, vol. 96(1), pages 74-92, January.
    2. Wan, Jer-Yuh & Kao, Chung-Wei, 2015. "Interactions between oil and financial markets — Do conditions of financial stress matter?," Energy Economics, Elsevier, vol. 52(PA), pages 160-175.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rosa, Carlo, 2014. "The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence," Energy Economics, Elsevier, vol. 45(C), pages 295-303.
    2. Bredin, Don & Hyde, Stuart & Reilly, Gerard O., 2010. "Monetary policy surprises and international bond markets," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 988-1002, October.
    3. Fischer, Andreas M. & Ranaldo, Angelo, 2011. "Does FOMC news increase global FX trading?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2965-2973, November.
    4. Neuhierl, Andreas & Weber, Michael, 2019. "Monetary policy communication, policy slope, and the stock market," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 140-155.
    5. Farka, Mira, 2009. "The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases," Review of Financial Economics, Elsevier, vol. 18(1), pages 47-55, January.
    6. Cyril May & Greg Farrell & Jannie Rossouw, 2018. "Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 308-338, September.
    7. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    8. Andreas Neuhierl & Michael Weber, 2016. "Monetary Policy and the Stock Market: Time-Series Evidence," NBER Working Papers 22831, National Bureau of Economic Research, Inc.
    9. Michael Weber & Ali Ozdagli, 2016. "Monetary Policy Through Production Networks: Evidence from the Stock Market," 2016 Meeting Papers 148, Society for Economic Dynamics.
    10. Andreas Neuhierl & Michael Weber, 2016. "Monetary Policy and the Stock Market: Time-Series Evidence," NBER Working Papers 22831, National Bureau of Economic Research, Inc.
    11. Yuriy Gorodnichenko & Michael Weber, 2016. "Are Sticky Prices Costly? Evidence from the Stock Market," American Economic Review, American Economic Association, vol. 106(1), pages 165-199, January.
    12. Wang, Shen & Mayes, David G., 2012. "Monetary policy announcements and stock reactions: An international comparison," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 145-164.
    13. Mira Farka, 2009. "The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases," Review of Financial Economics, John Wiley & Sons, vol. 18(1), pages 47-55, January.
    14. Rosa, Carlo, 2011. "Words that shake traders," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 915-934.
    15. Jinjarak, Yothin, 2014. "Equity prices and financial globalization," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 49-57.
    16. Rosa, Carlo, 2013. "Market efficiency broadcasted live: ECB code words and euro exchange rates," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 167-178.
    17. Roberto Rigobon & Brian Sack, 2008. "Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 335-370, National Bureau of Economic Research, Inc.
    18. Fatum, Rasmus & Scholnick, Barry, 2008. "Monetary policy news and exchange rate responses: Do only surprises matter?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1076-1086, June.
    19. Albuquerque, Rui & Vega, Clara, 2006. "Asymmetric Information in the Stock Market: Economic News and Co-movement," CEPR Discussion Papers 5598, C.E.P.R. Discussion Papers.
    20. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:46:y:2014:i:9:p:985-995. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.