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Has the effect of monetary policy announcements on asset prices changed?


  • Taeyoung Doh
  • Michael Connolly


The Federal Reserve increasingly has relied on forward guidance about the future path of the federal funds rate to implement monetary policy since the federal funds target rate reached its effective lower bound. The enhanced use of forward policy guidance has drawn attention to any change in its influence on the real economy. Changes in policy guidance affect the private sector?s expectations about the future path of the federal funds rate and, in turn, affect bond yields, stock prices and asset values. Changes in asset values influence real activity through their effects on spending by consumers and businesses. Doh and Connolly find a weakened response by stock prices and bond yields to the increased use of policy guidance since the recent financial crisis. Longer-term bond yields became less responsive because a prolonged period of the low interest rate reduced the variability of medium-term expectations; stock prices became less responsive because investors revised down their economic outlook in response to some announcements of a more accommodative monetary policy.

Suggested Citation

  • Taeyoung Doh & Michael Connolly, 2013. "Has the effect of monetary policy announcements on asset prices changed?," Economic Review, Federal Reserve Bank of Kansas City, pages 31-65.
  • Handle: RePEc:fip:fedker:00009

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    References listed on IDEAS

    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. Faust, Jon & Wright, Jonathan H., 2009. "Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 468-479.
    3. Michael T. Kiley, 2014. "The Response of Equity Prices to Movements in Long‐Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(5), pages 1057-1071, August.
    4. 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.
    5. Brian Sack, 2004. "Extracting the Expected Path of Monetary Policy From Futures Rates," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(8), pages 733-754, August.
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    Cited by:

    1. Andrew Lee Smith & Thealexa Becker, 2015. "Has forward guidance been effective?," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-3, Sep 4.
    2. Bernhard, Severin & Ebner, Till, 2017. "Cross-border spillover effects of unconventional monetary policies on Swiss asset prices," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 109-127.
    3. Guangye Cao & Travis J. Berge, 2014. "Global effects of U.S. monetary policy: is unconventional policy different?," Economic Review, Federal Reserve Bank of Kansas City, pages 5-31.
    4. repec:eee:intfin:v:51:y:2017:i:c:p:171-189 is not listed on IDEAS
    5. Nada Mora, 2014. "The weakened transmission of monetary policy to consumer loan rates," Economic Review, Federal Reserve Bank of Kansas City, pages 1-26.

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    Monetary policy; Bonds; Stock market - Prices;


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