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Do actions speak louder than words? the response of asset prices to monetary policy actions and statements

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  • Refet S. Gürkaynak
  • Brian P. Sack
  • Eric T. Swanson

Abstract

We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor--changes in the federal funds rate target-and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a \"current federal funds rate target\" factor and a \"future path of policy\" factor, with the latter closely associated with FOMC statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday dataset going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields.

Suggested Citation

  • Refet S. Gürkaynak & Brian P. Sack & Eric T. 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.).
  • Handle: RePEc:fip:fedgfe:2004-66
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    More about this item

    Keywords

    Federal funds rate; Federal Open Market Committee; Securities; Asset pricing; Monetary policy;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G0 - Financial Economics - - General

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