Federal Reserve Private Information and the Stock Market

Aeimit Lakdawala and Matthew Schaffer

MPRA Paper from University Library of Munich, Germany

Abstract: We study the response of stock prices to monetary policy, distinguishing the effects of exogenous policy actions from ``Delphic" actions that reveal the Federal Reserve's macroeconomic forecasts. To decompose composite monetary policy surprises into these separate components, we exploit differences in central bank and private sector forecasts to construct a measure of Federal Reserve private information. Contractionary monetary policy shocks of either type cause a fall in stock prices with exogenous shocks having a larger negative effect. However there is an important asymmetry; when FOMC meetings are unscheduled or when the fed funds rate reverses direction, stock prices actually rise in response to a contractionary Delphic shock.

Keywords: Monetary Policy Shocks; Stock Prices; Federal Reserve Private Information (search for similar items in EconPapers)
JEL-codes: E44 E5 G14 (search for similar items in EconPapers)
Date: 2016-12-13
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Journal Article: Federal reserve private information and the stock market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:77608

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