Stock Market Reaction to Monetary Policy: An Event Study Analysis of the Brazilian Case

This article examines the relationship between the monetary policy implemented by the Central Bank of Brazil and the stock market. We implement event study analysis and analyze the effect of the anticipated and unanticipated components of monetary policy decisions on the returns of the IBOVESPA index and 53 stocks. We find that monetary policy has a significant effect on the stock market, but is only responsible for a small proportion of market variation. The analysis at the sector level with expected returns identifies that the financial sector is the most affected by this policy, whereas with excess returns only industrial goods are significantly affected. Moreover, individual assets respond in a rather heterogeneous fashion to monetary policy; however, when we look at excess returns, we identify a reduction in the intensity and in the number of companies impacted by monetary policy. Finally, the monetary shock is explained by unanticipated variations in the unemployment rate, in the Industrial Production Index, in the General Market Price Index, and in the Broad Consumer Price Index.     

What Explains the Stock Market's Reaction to Federal Reserve Policy?

This paper analyzes the impact of changes in monetary policy on equity prices, with the objectives of both measuring the average reaction of the stock market and understanding the economic sources of that reaction. We find that, on average, a hypothetical unanticipated 25‐basis‐point cut in the Federal funds rate target is associated with about a 1% increase in broad stock indexes. Adapting a methodology due to Campbell and Ammer, we find that the effects of unanticipated monetary policy actions on expected excess returns account for the largest part of the response of stock prices.     

2012年二季度美国经济金融运行情况与经济、政策前瞻

文章回顾了2012年第二季度美国经济金融运行情况,其主要特点有：受消费支出增长、制造业增速、进出口增速放缓等因素影响,美国经济复苏势头减弱,失业率小幅回升。当前困扰美国经济金融运行的主要问题来自失业率居高难下、房地产复苏仍不稳定、财政整顿进展缓慢与金融监管改革有待深入推进等方面。综合看,未来美国经济复苏前景仍不容乐观,其现有宽松货币政策仍将继续维持,但近期内出台更大规模宽松政策的可能性不大。     

Estimating the impact of monetary policy on income inequality in China

The article estimates the impact of monetary policy on income inequality in China. The empirical time series analysis finds that a battery of monetary indicators and the change in the unemployment rate lead to increases in the Gini coefficient. But only unemployment is statistically significant. The lack of significance of the monetary indicators is robust to running different econometric models using nominal output as an alternative to unemployment. Unemployment’s impact on income inequality is robust to considering a fiscal policy proxy alongside inflation in the benchmark equation.     

Monetary policy shocks and stock returns: evidence from the British market

This paper examines the impact of anticipated and unanticipated interest rate changes on aggregate and sectoral stock returns in the United Kingdom. The monetary policy shock is generated from the change in the 3-month sterling LIBOR futures contract. Results from time-series and panel analysis indicate an important structural break in the relationship between stock returns and monetary policy shifts. Specifically, whereas before the credit crunch, the stock market response to both expected and unexpected interest rate changes is negative and significant; the relationship becomes positive during the credit crisis. The latter finding highlights the inability, so far, of monetary policymakers to reverse, via interest rate cuts, the negative trend observed in stock prices since the onset of the credit crisis.     

Credit risk dynamics in response to changes in the federal funds target: The implication for firm short-term debt

The recent credit crisis has raised a number of interesting questions regarding the role of the Federal Reserve Bank and the effectiveness of its expected and unexpected interventions in financial markets, especially during the crisis, given its mandate. This paper reviews and evaluates the impact of expected and unexpected changes in the federal funds rate target on credit risk premia. The paper's main innovation is the use of an ACH-VAR (autoregressive conditional hazard VAR) model to generate the Fed's expected and unexpected monetary policy shocks which are then used to determine the effects of a Federal Reserve policy change on counterparty credit risk and more importantly short-term firm debt financing. The findings answer a longstanding question sought by researchers on the effect of policy makers' announcements on firm debt financing. The results clearly show that the Federal Reserve influences short-term debt financing through the credit channel for both expansionary and contractionary monetary policies. In particular, we find that the growth in counterparty risk appears less responsive to anticipated responses in the Fed funds rate that fail to materialize than to an unanticipated increase in the federal funds rate. Finally, we also document that the results appear to validate the Feds interventions in financial markets to stem counterparty risk and to make liquidity more readily available to firms.     

美国非预期货币政策会影响我国的利率期限结构吗?

本文通过Bloomberg与Wind相关日频数据,利用主成分分析的方法,提取了我国银行间市场与国债债券市场的利率期限结构截距因子、斜率因子与曲率因子。在此基础上,该文研究了美国非预期货币政策冲击对我国利率期限结构的外溢作用。研究结果表明,该外溢作用显著存在,它扭曲了我国银行间市场与债券市场的利率期限结构,会导致我国利率期限结构“倒挂”,提高短期利率水平,压低长期利率水平,进而加剧我国金融市场中系统性风险集聚。     

Market Response to the Weekly Money Supply Announcements in the 1970s

The hypothesis that the weekly announcement of the money supply affects interest rates is examined. The announcement effect is interpreted as a policy anticipation effect. That is, an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the Federal Reserve. Estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an ARIMA model indicate that: (a) financial markets respond very quickly to the announcement; and (b) the response was largest when policymakers emphasized the importance of the monetary aggregates.     

Changes in the Federal Reserve Communication Strategy: A Structural Investigation

This paper structurally investigates the changes in the Fed's communication strategy since the mid‐1990s through the lens of anticipated and unanticipated disturbances to a Taylor rule. The anticipated disturbances are identified using Treasury bond yield data in estimating a dynamic stochastic general equilibrium (DSGE) model with a term structure of interest rates. Our estimation results show that the Fed's decisions were unanticipated for market participants until 1999, but thereafter a larger portion of its future policy actions tended to be communicated in advance. We also find that the relative contribution of the anticipated monetary policy disturbances to macroeconomic fluctuations became larger after 1999. The bond yield data is indispensable to these results, since it contains crucial information on an expected future path of the federal funds rate.     

The Effects of Monetary Policy “News” and “Surprises”

There is substantial agreement in the monetary policy literature over the effects of exogenous monetary policy shocks. The shocks that are investigated, however, almost exclusively represent unanticipated changes in policy, which surprise the private sector and which are typically found to have a delayed and sluggish effect on output. In this paper, we estimate a New Keynesian model that incorporates news about future policies to try to disentangle the anticipated and unanticipated components of policy shocks. The paper shows that the conventional estimates confound two distinct effects on output: an effect due to unanticipated or “surprise” shocks, which is smaller and more short‐lived than the response usually obtained in the literature, and a large, delayed, and persistent effect due to anticipated policy shocks or “news.” News shocks play a larger role in influencing the business cycle than unanticipated policy shocks, although the overall fraction of economic fluctuations that can be attributed to monetary policy remains limited.     

货币政策立场与大宗商品价格的非线性关系——基于大宗商品金融化程度的视角

选取2008年3月—2020年6月月度数据,运用TVP-SVAR-SV模型和MS-VAR模型研究货币政策立场与大宗商品价格的非线性关系。结果显示：货币政策立场对大宗商品价格具有显著的时变影响,短期效应明显大于长期效应;当金融化程度高时,货币政策立场对大宗商品价格的影响更强、持续时间更久;相比于预期到的货币政策,未预期到的货币政策冲击对大宗商品价格的影响更显著,表明货币政策立场的重要性。     

中国货币政策与就业关系实证分析

自改革开放以来，失业一直是中国政府关注的重要问题。本文主要通过分析我国法定存款准备金率的变动如何影响银行的信用规模，进而对国内就业产生影响，得出货币政策的实施可以影响国内贷款规模，国内贷款的变动可以滞后两期对就业产生冲击的结论。笔者认为，只要有效运用货币政策就可以积极促进就业。     

Monetary policy effects in times of negative interest rates: What do bank stock prices tell us?

This paper investigates bank stock performance following different monetary policy actions in times of positive and negative interest rates. Controlling for the broader stock market, monetary policy announcements that cause an unanticipated downward shift in the yield curve and a flattening of the shorter-end of the yield curve are found to persistently reduce bank stock prices once the interest rate environment is negative. Consistent with the deposits channel of monetary policy, the effects are larger and more persistent for banks that are relatively dependent on deposit funding. By contrast, a surprise movement in the slope of the longer-end of the yield curve does not impact bank stock prices in times of negative interest rates. Accounting data confirm that a parallel drop in the yield curve following a monetary policy decision in a negative interest rate environment hurts banks through shrinking deposit margins.     

Labor contracts and monetary policy

Fischer and others have shown that the very existence of long-term contracts can imply a stabilization role for monetary policy in models that incorporate the natural rate hypothesis and rational expectation formation. The present paper examines some of the factors that determine the length of labor contracts and how they are affected by monetary policy. It is argued that a successful stabilization policy might be expected to increase the length of contracts. The net effect of the imposition of such a policy would therefore be to dampen the amplitude of business cycles, but to make them more inertia ridden.     

The reaction of international stock markets to Federal Reserve policy

This paper investigates how changes in Federal Reserve policy impact international stock returns, with the three objectives of measuring the reaction of international stock markets, understanding the transmission channels of that reaction, and explaining the economic sources of that reaction. We find that unanticipated Federal Reserve policy actions exert a significant and robust influence on international stock prices. However, the influence of unanticipated monetary policy actions is not strong enough to change the correlation structure of international equity returns. We also find that international stock return co-movements play an important role in the transmission of monetary policy. Finally, the variance decomposition analysis indicates that the effects of monetary policy surprises on future excess returns or dividend returns account for the largest portion of the equity price response.     

The response of real wages to unanticipated money growth

This paper investigates the response of real wages to unanticipated money growth in the light of equilibrium theories of the business cycle. These theories, in their main different versions, do not deliver a common and unambiguous hypothesis on this issue. While some models implu a countercyclical real wage response during monetary cycles, others yield the opposite result of a procyclical real wage. Econometric analysis of annual and quarterly U.S. data, reported in the paper, indicates that there is a weak negative real wage response to an unanticipated increase in money growth.     

Ramsey monetary policy with labor market frictions

Traditional New Keynesian models prescribe that optimal monetary policy should aim at price stability. In the absence of a labor market frictions, the monetary authority faces no unemployment/inflation trade-off. The design of optimal monetary policy is analyzed here for a framework with sticky prices and matching frictions in the labor market. Optimal policy features deviations from price stability in response to both productivity and government expenditure shocks. When the Hosios [1990. On the efficiency of matching and related models of search and unemployment. Review of Economic Studies 57 (2), 279-298] condition is not met, search externalities make the flexible price allocation unfeasible. Optimal deviations from price stability increase with workers’ bargaining power, as firms incentives to post vacancies fall and unemployment fluctuates above the Pareto efficient one.     

Real effects of anticipated and unanticipated money: Some problems of estimation and hypothesis testing

The paper addresses two issues that arise in estimation and testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restriction is imposed that monetary growth does not depend on unanticipated (or unperceived) output. Second, the existing empirical work of Barro and others does not allow for three known channels through which money can affect real variables. These are (1) past and present anticipations of future monetary growth (the inflation tax channel), (2) expectations of monetary growth in a given period conditioned at various preceding dates (the Fischer-Phelps-Taylor effect) and (3) past and present revisions in forecasts of future monetary growth. The presence of the first of these would mean that alternative open-loop monetary growth rules have real effects. The presence of the other two implies that monetary feedback rules can have real effects. Omission of the first channel can lead to biased estimates of the effects of past anticipated monetary growth. Potentially serious observational equivalence problems are associated with the other two.     

Monetary Policy and Financial Markets at the Effective Lower Bound

I discuss what determines the effective lower bound (ELB) for the policy rate and argue that the ELB is not hard, but rather soft, and that it is probably slightly negative. I argue that, at the ELB, current output can be increased by (i) monetary policy that extends the period of credibly low policy rates and generates inflation expectations, (ii) financial‐stability policy—which is distinct from monetary policy—that reduces the spreads between market interest rates and the policy rate, and (iii) fiscal policy that increases the neutral real rate by reducing expected growth of government expenditure and increases potential output by increasing current government expenditure.