The Time-Varying Effect of Monetary Policy on Asset Prices

Pascal Paul

The Review of Economics and Statistics, 2020, vol. 102, issue 4, 690-704

Abstract: This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. I develop an estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks. This is achieved by integrating the surprises into a vector autoregressive model as an exogenous variable. I use current short-term rate surprises because these are least affected by an information effect. When allowing for time-varying model parameters, I find that compared to the response of output, the reaction of stock and house prices to monetary policy shocks was particularly low before the 2007–2009 financial crisis.

Date: 2020
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Working Paper: The Time-Varying Effect of Monetary Policy on Asset Prices (2019)
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