Impact of the Fed’s Unconventional Monetary Policy on the US Financial Market

Silvia Trifonova () and Svilen Kolev
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Silvia Trifonova: University of National and World Economy, Bulgaria

Eurasian Journal of Economics and Finance, 2021, vol. 9, issue 3, 145-158

Abstract: This paper is devoted to the unconventional monetary policy measures implemented by the US Federal Reserve (Fed) after the global financial crisis. The objective is to conduct an empirical analysis and econometric study on the effects of the US Fed non-standard monetary policy measures on the US financial market, namely by observing the reaction on the US 10-year government bond yield, the US stock market via the S&P 500 index, and the exchange rate of the US dollar versus the euro (EUR/USD). The observed period spreads from January 2009 to March 2019, with the use of monthly data. It captures the Fed’s unconventional monetary policy measures, the first steps of the then planned gradual termination of quantitative easing (QE) and lifting of the interest rates, which was reverted in the course of 2019 and 2020. The results from the constructed vector error correction model suggest that Fed’s monetary policy stance continues to influence the changes in the bond yields, the S&P 500 index, and the value of the US dollar through the interest rate, the portfolio balance, and the exchange rate channels. The findings show that the process of normalization of the monetary policy regarding the future interest rates path in the US under the Fed’s monetary policy must be carefully guided. It must be consistent with the macroeconomic conditions and the state of the financial sector. The impact on the developed and emerging markets must be considered as well, with the main aim of avoiding potential serious risks.

Keywords: Monetary Policy; Unconventional Monetary Policy; Central Banks; Financial Markets; Quantitative Easing (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejefjr:v:9:y:2021:i:3:p:145-158

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