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Asymmetric Response to Monetary Policy Surprises at the Long-End of the Yield Curve

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  • Selva Demiralp

    () (Koc University)

  • Kamil Yilmaz

    () (Koc University)

Abstract

This paper provides a dynamic analysis of the responsiveness of asset markets to monetary policy path revisions. In an era of increased transparency and gradualism in policy making, one might expect an increased response to path revisions in asset markets as the policy actions become more predictable over longer horizons. Using federal funds futures contracts to extract near-term path revisions, we find that the responsiveness of Treasury securities to path revisions is significantly asymmetric, increasing during cycles of tightenings and declining during easings. This is consistent with the earlier literature that documents asymmetric effects of monetary policy on output.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_0914.pdf
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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 0914.

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Length: 38 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:koc:wpaper:0914

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Keywords: Asymmetric monetary policy; yield curve; federal funds futures;

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  1. Carpenter, Seth & Demiralp, Selva, 2006. "The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 901-920, June.
  2. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November.
  3. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  4. Michael Ehrmann & Marcel Fratzscher, 2004. "Taking stock: monetary policy transmission to equity markets," Working Paper Series 354, European Central Bank.
  5. Donald P. Morgan, 1993. "Asymmetric effects of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 21-33.
  6. Selva Demiralp, 2008. "Monetary Policy Surprises and the Expectations Hypothesis at the Short End of the Yield Curve," Koç University-TUSIAD Economic Research Forum Working Papers 0802, Koc University-TUSIAD Economic Research Forum.
  7. Refet S. Gürkaynak, 2005. "Using federal funds futures contracts for monetary policy analysis," Finance and Economics Discussion Series 2005-29, Board of Governors of the Federal Reserve System (U.S.).
  8. Monika Piazzesi & Eric Swanson, 2004. "Future prices as risk-adjusted forecasts of monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  9. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  10. Carpenter, Seth & Demiralp, Selva, 2006. "Anticipation of Monetary Policy and Open Market Operations," MPRA Paper 704, University Library of Munich, Germany.
  11. Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
  12. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
  13. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 433-494.
  14. repec:fth:harver:1418 is not listed on IDEAS
  15. Lange, Joe & Sack, Brian & Whitesell, William, 2003. " Anticipations of Monetary Policy in Financial Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 889-909, December.
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