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

By R. Gürkaynak, Brian P. Sack, Eric T. Swanson. 2004

1,619 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f73071fc13b9d58afdb363632bb405cec021872e

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Citations in the corpus

Measuring euro area monetary policy (2019, positive): “We construct the Target and Forward Guidance surprises following the methodology employed in Gürkaynak et al. (2005) and Gürkaynak (2005) , who in turn build on the work of Kuttner (2001) , using Federal Funds futures quotes to measure policy surprises in the US.”
Shocking language: understanding the macroeconomic effects of central bank communication (2016, positive): “A key motivating paper for this literature is Gürkaynak, Sack, and Swanson (2005) (GSS).”
Monetary Policy Inertia: Fact or Fiction? (2006, neutral): “The data are discussed in Gürkaynak, Sack, and Swanson (2004, 2005) and were kindly supplied by the authors.”
U.S. Monetary Policy and the Global Financial Cycle (2020, methodology): “We use the Target (FOMCF) and Path (PATHF) factors of Gürkaynak et al. (2005), and their underlying components, whose use as instruments for the monetary policy shock was first introduced, at monthly frequency, in Gertler and Karadi (2015).(17) In Table 2, MP1 and FF4 are the monetary surprises impl”
What Explains the Covid-19 Stock Market? (2020, positive): “To gauge the effect of an announcement, we follow prior research (e.g., Guraynak, Sack, and Swanson (2005)) and consider a measurement window that begins 10 minutes prior to a Fed announcement and ends 20 minutes after the announcement, unless the announcement occurred outside of trading hours, in…”
The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program (2015, positive): “As shown by Kuttner (2001), Bernanke and Kuttner (2005), and Gürkaynak et al. (2005), among others, stock prices react to unexpected monetary shocks.”