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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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  • Gurkaynak, Refet S
  • Sack, Brian
  • Swanson, Eric T

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 Federal Open Market Committee statements.We measure the effects of these two factors on bond yields and stock prices using a new intraday data set 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

  • 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.
  • Handle: RePEc:pra:mprapa:820
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    More about this item

    Keywords

    Monetary Policy; Asset Prices; Factor Analysis; Multi-dimensional Policy;
    All these keywords.

    JEL classification:

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

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