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Has the Fed Reacted Asymmetrically to Stock Prices?
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Søren Hove Ravn
Published/Copyright:
June 8, 2012
This paper presents an empirical study of a potential asymmetry in the response of monetary policy to stock prices in the US. The main finding is that while monetary policy reacts significantly to stock price drops, no significant reaction to stock price increases is found. This result is obtained by applying the method of identification through heteroskedasticity to a daily dataset covering the period 1998-2008. The result is confirmed in an estimated, augmented Taylor rule based on monthly data for the same period. The size of the estimated, asymmetric reaction is modest.The study constitutes an empirical contribution to the debate about the role of asset prices in monetary policy, which has seen a revival in the aftermath of the crisis. In particular, the results lend empirical support to recent claims that the pre-crisis approach to monetary policy implied an asymmetric policy stance towards stock price movements.
Published Online: 2012-6-8
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects
- Economic Growth and Political Survival
- Exchange Rate Uncertainty and Trade
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms
- A Unified Framework for Using Micro-Data to Compare Dynamic Time-Dependent Price-Setting Models
- Government Policy Response to War-Expenditure Shocks
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