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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements
Refet Gurkaynak, Brian Sack, Eric 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.

Keywords: Measuring monetary policy surprises, FOMC statement, factor models, assest prices

Full paper (613 KB PDF)

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Last update: December 2, 2004