Monetary Policy without Moving Interest Rates: The Fed Non-Yield Shock

Christoph Boehm and T. Niklas Kroner

No 1392, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Existing high-frequency monetary policy shocks explain surprisingly little variation in stock prices and exchange rates around FOMC announcements. Further, both of these asset classes display heightened volatility relative to non-announcement times. We use a heteroskedasticity-based procedure to estimate a “Fed non-yield shock”, which is orthogonal to yield changes and is identified from excess volatility in the S&P 500 and various dollar exchange rates. A positive non-yield shock raises stock prices in the U.S. and around the globe, and depreciates the dollar against all major currencies. The non-yield shock is essentially uncorrelated with previous monetary policy shocks and its effects are large in comparison. Its strong effects on the VIX and other risk-related measures point towards a dominant risk premium channel. We show that the non-yield shock can be related to Fed communications and that its existence has implications for the identification of structural monetary policy shocks.

Keywords: Federal Reserve; Monetary Policy; Stock Market; Exchange Rates; Asset Prices; Risk Premia; Information Effects; High-frequency Identification (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 F31 G10 (search for similar items in EconPapers)
Date: 2024-07-18
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Monetary Policy without Moving Interest Rates: The Fed Non-Yield Shock (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1392

DOI: 10.17016/IFDP.2024.1392

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