What explains the stock market's reaction to Federal Reserve policy?

Ben S. Bernanke and Kenneth Neil Kuttner ()

No 2004-16, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper analyzes the impact of changes in monetary policy on equity prices, with the objectives both of measuring the average reaction of the stock market and also of 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 one percent increase in broad stock indexes. Adapting a methodology due to Campbell (1991) and Campbell and Ammer (1993), 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.

Keywords: Monetary policy; Stock exchanges (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mon
Date: 2004
View list of references View citations in EconPapers

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2004/200416/200416abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2004/200416/200416pap.pdf (application/pdf)

Related works:
Working Paper: What Explains the Stock Market's Reaction to Federal Reserve Policy? (2004)
Working Paper: What explains the stock market's reaction to Federal Reserve policy? (2003)
Journal Article: What Explains the Stock Market's Reaction to Federal Reserve Policy? (2005)
Journal Article: What explains the stock market's reaction to Federal Reserve policy? (2003)
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: http://EconPapers.repec.org/RePEc:fip:fedgfe:2004-16

Ordering information: This working paper can be ordered from
http://www.federalre ... /feds/fedsorder.html

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().