Whatever it Takes? The Impact of Conditional Policy Promises

Valentin Haddad, Alan Moreira and Tyler Muir

No 31259, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: At the announcement of a new policy, agents form a view of state-contingent policy actions and impact. We develop a method to estimate this state-contingent perception and implement it for many asset-purchase interventions worldwide. Expectations of larger support in bad states—“policy puts”—explain a large fraction of the announcements’ impact. For example, when the Fed introduced purchases of corporate bonds in March 2020, markets expected five times more price support had conditions worsened relative to the median scenario. Perceived promises of additional support in bad states persistently distort asset prices, risk, and the response to future announcements.

JEL-codes: E50 G0 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-cba and nep-mon
Note: AP CF EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.nber.org/papers/w31259.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:31259

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w31259

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().