The Economics of the Fed Put

Anna Cieslak and Vissing-Jørgensen, Annette
Authors registered in the RePEc Author Service: Annette Vissing-Jorgensen

No 14685, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed's growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.

Keywords: Fed put; Monetary policy; stock market; Textual analysis; Taylor rules (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Journal Article: The Economics of the Fed Put (2021)
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