When does Monetary Policy Matter? Policy Stance vs. Term Premium News 1

Sylvérie Herbert, Paul Hubert and Mathias Lé ()
Additional contact information
Mathias Lé: Centre de recherche de la Banque de France - Banque de France

Sciences Po Economics Publications (main) from HAL

Abstract: This paper investigates when monetary policy announcements matter for asset price dynamics. We identify a fundamental heterogeneity in FOMC statements based on the underlying nature of information conveyed about future policy. Using a simple but novel classification, we identify meetings that convey substantial information about uncertainty surrounding future policy. These statements -one-third of the total -drive most, if not all, of the effects of monetary policy on longterm interest rates and account for a large fraction of their variation on these days. In contrast, directional statements about the policy stance -half of all meetings -have no effect on long-term rates but do affect short-term rates and stock prices. The strong effects on long-term rates stem from term premium adjustments rather than expected future short-term rates, consistent with investors' updating their assessment of higher-order moments of future policy developments. Our classification resolves why policy announcements explain little variance in long-term rates despite driving their dynamics over time.

Keywords: market; expectations (search for similar items in EconPapers)
Date: 2025-11
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05481635v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://sciencespo.hal.science/hal-05481635v1/document (application/pdf)

Related works:
Working Paper: When does Monetary Policy Matter? Policy Stance vs. Term Premium News (2025)
Working Paper: When does Monetary Policy Matter? Policy Stance vs. Term Premium News 1 (2025)
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:hal:spmain:hal-05481635

Access Statistics for this paper

More papers in Sciences Po Economics Publications (main) from HAL
Bibliographic data for series maintained by Contact - Sciences Po Department of Economics ().