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Asset markets and monetary policy shocks at the zero lower bound

  • Edda Claus
  • Iris Claus
  • Leo Krippner

This paper quantifies the impact of monetary policy shocks on asset markets in the United States and gauges the usefulness of a shadow short rate as a measure of conventional and unconventional monetary policy shocks. Monetary policy surprises are found to have had a larger impact on asset markets since short term interest rates reached the zero lower bound. Our results indicate that much of the increased reaction is due to changes in the transmission of shocks and only partly due to larger monetary policy surprises.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-05/42_2014_eclaus_iclaus_krippner.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-42.

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Length: 30 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-42
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  1. Christina D. Romer & David H. Romer, 2003. "A New Measure of Monetary Shocks: Derivation and Implications," NBER Working Papers 9866, National Bureau of Economic Research, Inc.
  2. Gurkaynak, Refet S & Sack, Brian & Swanson, Eric T, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," MPRA Paper 820, University Library of Munich, Germany.
  3. Joseph G. Altonji & Lewis M. Segal, 1994. "Small Sample Bias in GMM Estimation of Covariance Structures," NBER Technical Working Papers 0156, National Bureau of Economic Research, Inc.
  4. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  5. Leo Krippner, 2011. "Modifying Gaussian term structure models when interest rates are near the zero lower bound," CAMA Working Papers 2011-36, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
  7. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
  8. Leo Krippner, 2014. "Measuring the stance of monetary policy in conventional and unconventional environments," CAMA Working Papers 2014-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Edda Claus & Mardi Dungey, 2012. "U.S. Monetary Policy Surprises: Identification with Shifts and Rotations in the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1443-1453, October.
  10. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  11. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  12. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
  13. Daniel L. Thornton, 2014. "The identification of the response of interest rates to monetary policy actions using market-based measures of monetary policy shocks," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 67-87, January.
  14. Leo Krippner, 2013. "A tractable framework for zero lower bound Gaussian term structure models," Reserve Bank of New Zealand Discussion Paper Series DP2013/02, Reserve Bank of New Zealand.
  15. Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-76, December.
  16. Carlo Rosa, 2012. "How "unconventional" are large-scale asset purchases? The impact of monetary policy on asset prices," Staff Reports 560, Federal Reserve Bank of New York.
  17. Roberto Rigobon & Brian P. Sack, 2002. "The Impact of Monetary Policy on Asset Prices," NBER Working Papers 8794, National Bureau of Economic Research, Inc.
  18. Craine, Roger & Martin, Vance L., 2008. "International monetary policy surprise spillovers," Journal of International Economics, Elsevier, vol. 75(1), pages 180-196, May.
  19. Fawley, Brett W. & Neely, Christopher J., 2013. "Four stories of quantitative easing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-88.
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