Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements

Gurkaynak, Refet S and Sack, Brian and Swanson, Eric T (2005): Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements. Published in: International Journal of Central Banking , Vol. Volume, No. Number 1 (13 June 2005): pp. 55-93.

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 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy; Asset Prices; Factor Analysis; Multi-dimensional Policy
• Subjects: G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G0 - General

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