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

Ben S. Bernanke and Kenneth Neil Kuttner ()

No 10402, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E44 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-mon
Date: 2004-04
Note: ME
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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)
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