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Federal Reserve and Market Confidence

Author

Listed:
  • Nina Boyarchenko

    (Federal Reserve Bank of New York)

  • Matthew Plosser

    (Federal Reserve Bank of New York)

  • Valentin Haddad

    (University of California, Los Angeles)

Abstract

We discover a novel monetary policy shock that has a widespread impact on aggregate nancial conditions and market condence. Our shock can be summarized by the response of long-horizon yields to FOMC announcements; not only is it orthogonal to changes in the near-term path of policy rates, but it also explains more than half of the abnormal variation in the yield curve on announcement days. We nd that our shock is positively related to changes in real interest rates and market volatility, and negatively related to market returns and mortgage issuance, consistent with policy announcements aecting market condence. Our results demonstrate that Federal Reserve pronouncements in uence markets independent of changes in the stance of conventional monetary policy.

Suggested Citation

  • Nina Boyarchenko & Matthew Plosser & Valentin Haddad, 2018. "Federal Reserve and Market Confidence," 2018 Meeting Papers 781, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:781
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    References listed on IDEAS

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    Cited by:

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    3. Daniel J. Lewis, 2022. "Robust Inference in Models Identified via Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 104(3), pages 510-524, May.
    4. Przemysław Włodarczyk, 2018. "Rynek pracy w modelu nowej syntezy neoklasycznej ze sztywnościami płac nominalnych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 51-92.
    5. Andreas Neuhierl & Michael Weber & Michael Weber, 2017. "Monetary Momentum," CESifo Working Paper Series 6648, CESifo.
    6. Christoph Bertsch & Isaiah Hull & Xin Zhang, 2021. "Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending," International Journal of Central Banking, International Journal of Central Banking, vol. 17(71), pages 1-47, December.
    7. Caporin, Massimiliano & Pelizzon, Loriana & Plazzi, Alberto, 2020. "Does monetary policy impact international market co-movements?," SAFE Working Paper Series 276, Leibniz Institute for Financial Research SAFE.
    8. Adrian, Tobias & Duarte, Fernando & Grinberg, Federico & Mancini-Griffoli, Tommaso, 2018. "Monetary Policy and Financial Conditions: A Cross-Country Study," CEPR Discussion Papers 12681, C.E.P.R. Discussion Papers.
    9. Dossani, Asad, 2021. "Central bank tone and currency risk premia," Journal of International Money and Finance, Elsevier, vol. 117(C).
    10. Markus Heckel & Kiyohiko G. Nishimura, 2020. "Unconventional Monetary Policy through Open Market Operations: A Principal Component Analysis," CARF F-Series CARF-F-501, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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