A Structural Approach to High-Frequency Event Studies: The Fed and Markets as Case History

Francesco Bianchi, Sydney Ludvigson and Sai Ma

No 30072, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What do markets learn from newsworthy events? We develop a methodology for integrating a high-frequency event study into a macro-finance model and structural estimation, and apply it to Federal Reserve announcements. Beliefs about the economic state and about regime change in future policy jump in response to monetary news and move subjective risk premia through two main channels, macro volatility and a Fed put, with the Fed put accounting for most of the resulting movement in premia. Such jumps often generate positive comovement between short rates and the stock market, erroneously suggesting “Fed information shocks.”

JEL-codes: E52 E58 E7 G12 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mac and nep-mon
Note: AP EFG ME
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