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Can the Fed Talk the Hind Legs off the Stock Market? (replaced by CentER DP 2012-012)

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Author Info

  • Raes, L.B.D.
  • Eijffinger, S.C.W.
  • Mahieu, R.J.

    (Tilburg University, Center for Economic Research)

Abstract

Deliberately or not, by providing its stance on the prospects of the economy, rationalizing past decisions or announcing future actions, central banks in fluence financial markets' expectations of its future policy. In bad times, monetary policy communication inducing an upward revision of the path of future policy is good news for stocks. During an expansion the effect is weak and on average negative. The response of equities to central bank talk depends critically on the business cycle. There are strong industry specific effects of monetary policy actions and communication. These industry effects relate to the variation in cyclicality of different industries. Firm-specific effects of monetary policy relate to the leverage, the size and the price-earnings ratio of firms.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-072.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011072

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Web page: http://center.uvt.nl

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Keywords: Monetary policy; Monetary policy announcements; Credit Channel; Business cycle; Stock market;

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