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A Structural Approach to High-Frequency Event Studies: The Fed and Markets as Case History

Author

Listed:
  • Francesco Bianchi
  • Sydney C. Ludvigson
  • Sai Ma

Abstract

What do markets learn from newsworthy events? We develop a methodology for integrating a high-frequency event study into a macro-finance model and structural estimation, and apply it to Federal Reserve announcements. Beliefs about the economic state and about regime change in future policy jump in response to monetary news and move subjective risk premia through two main channels, macro volatility and a Fed put, with the Fed put accounting for most of the resulting movement in premia. Such jumps often generate positive comovement between short rates and the stock market, erroneously suggesting “Fed information shocks.”

Suggested Citation

  • Francesco Bianchi & Sydney C. Ludvigson & Sai Ma, 2022. "A Structural Approach to High-Frequency Event Studies: The Fed and Markets as Case History," NBER Working Papers 30072, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30072
    Note: AP EFG ME
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    Cited by:

    1. Bardóczy, Bence & Savoia, Ettore & Vel´asquez-Giraldo, Mateo, 2026. "HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations," Working Paper Series 461, Sveriges Riksbank (Central Bank of Sweden).
    2. Pflueger, Carolin, 2025. "Back to the 1980s or not? The drivers of inflation and real risks in Treasury bonds," Journal of Financial Economics, Elsevier, vol. 167(C).
    3. Alex Hsu & Indrajit Mitra & Linghang Zeng, 2023. "The Profitability Channel of Monetary Policy Transmission," FRB Atlanta Working Paper 2023-6, Federal Reserve Bank of Atlanta.
    4. Lodge, David & Manu, Ana-Simona & Van Robays, Ine, 2023. "China’s footprint in global financial markets," Working Paper Series 2861, European Central Bank.

    More about this item

    JEL classification:

    • 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
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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