Non-monetary news in Fed announcements: Evidence from the corporate bond market

Michael Smolyansky and Gustavo Suarez
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Michael Smolyansky: https://www.federalreserve.gov/econres/michael-smolyansky.htm

No 2021-010r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: When the Federal Reserve tightens monetary policy, do the prices of riskier assets fall relative to safer assets? Or, do investors interpret policy tightening as a signal that economic fundamentals are stronger than they previously believed, thus leading riskier assets to outperform? We present evidence that the latter of these two forces empirically dominates within the U.S. corporate bond market. Following an unanticipated monetary policy tightening, riskier corporate bonds outperform safer corporate bonds, demonstrating the importance of an informational, or nonmonetary, component within monetary policy announcements.

Keywords: Monetary policy; Corporate bonds; Non-monetary news; Federal Reserve information effect; Reaching for yield (search for similar items in EconPapers)
JEL-codes: E40 E52 G12 G14 (search for similar items in EconPapers)
Pages: 76 p.
Date: 2021-02-16, Revised 2025-01-31
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Revision
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-10

DOI: 10.17016/FEDS.2021.010r1

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