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Are financial markets less responsive to monetary policy shocks at the zero lower bound?

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  • Wu, Wenbin

Abstract

This paper investigates the time-varying effect of monetary policy shocks on financial markets. We show that the corporate bond market is highly responsive to monetary policy shocks throughout 2000–2012, implying a high pass-through of policy-induced movements in Treasury yields to private yields even during the zero lower bound period. While the long-term Treasury bond market is highly sensitive to monetary policy shocks throughout almost the entire sample, the short-term Treasury bond market is severely constrained by the zero lower bound. The stock market is less responsive from 2008 to 2010, but the responsiveness bounces back rapidly in 2011.

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  • Wu, Wenbin, 2016. "Are financial markets less responsive to monetary policy shocks at the zero lower bound?," Economics Letters, Elsevier, vol. 145(C), pages 258-261.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:258-261
    DOI: 10.1016/j.econlet.2016.07.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; Zero lower bound; Financial market;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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