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Global effects of U.S. monetary policy: is unconventional policy different?

  • Berge, Travis J.

    (Federal Reserve Bank of Kansas City)

  • Cao, Guangye

    (Federal Reserve Bank of Kansas City)

U.S. monetary policy can affect asset prices both in the United States and outside of the country as investors arbitrage away price differentials between assets with similar risk/reward characteristics. Since late 2008, however, the conventional tool for monetary policy in the United States—the federal funds rate—has been near zero. As a result, the Federal Reserve has turned to unconventional monetary policies to provide additional accommodation. These unconventional policies may have altered the response of asset prices to Fed policy. Berge and Cao show that changes in U.S. monetary policy are associated with movements in a variety of asset prices, both in the United States and abroad. Evidence of a change in the behavior of asset prices at the zero lower bound is mixed. The responses of asset prices within the United States to monetary policy do not appear to be different at the zero lower bound. However, some international asset prices do appear to react differently to policy announcements after 2007.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2014)
Issue (Month): Q I ()
Pages: 5-31

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Handle: RePEc:fip:fedker:00010
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  1. Refet Gürkaynak & Brian Sack & Eric Swanson, 2004. "Do actions speak louder than words? the response of asset prices to monetary policy actions and statements," Finance and Economics Discussion Series 2004-66, Board of Governors of the Federal Reserve System (U.S.).
  2. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
  3. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, 02.
  4. Ben Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  5. Doh, Taeyoung & Connolly, Michael, 2013. "Has the effect of monetary policy announcements on asset prices changed?," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 3-4, September.
  6. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
  7. Travis J. Berge, 2012. "Has globalization increased the synchronicity of international business cycles?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III.
  8. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  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.
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