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The Time-Varying Effect of Monetary Policy on Asset Prices

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This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. To this end, I develop an estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks. This is achieved by integrating the surprises into a vector autoregressive model as an exogenous variable. I show analytically that this approach identifies the true relative impulse responses. When allowing for time-varying model parameters, I find that, compared to output, the response of stock and house prices to monetary policy shocks was particularly low before the 2007-09 financial crisis.

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  • Paul, Pascal, 2017. "The Time-Varying Effect of Monetary Policy on Asset Prices," Working Paper Series 2017-9, Federal Reserve Bank of San Francisco, revised 02 Jan 2018.
  • Handle: RePEc:fip:fedfwp:2017-09
    DOI: 10.24148/wp2017-09
    Note: First online version: November 2015.
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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