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

Ben Bernanke and Kenneth 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)
Date: 2004
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mon
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Citations: View citations in EconPapers (36)

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Related works:
Journal Article: What Explains the Stock Market's Reaction to Federal Reserve Policy? (2005)
Working Paper: What Explains the Stock Market's Reaction to Federal Reserve Policy? (2004)
Journal Article: What explains the stock market's reaction to Federal Reserve policy? (2003)
Working Paper: What explains the stock market's reaction to Federal Reserve policy? (2003)
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