What Explains the Stock Market's Reaction to Federal Reserve Policy? / Ben S. Bernanke, Kenneth N. Kuttner.

Format:

Book

Author/Creator:

Bernanke, Ben S.

Contributor:

National Bureau of Economic Research.

Kuttner, Kenneth N.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10402.

NBER working paper series no. w10402

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

This paper analyzes the impact of changes in monetary policy on equity prices, with the objectives both of measuring the average reaction of the stock market and also of understanding the economic sources of that reaction. We find that, on average, a hypothetical unanticipated 25-basis-point cut in the federal funds rate target is associated with about a one percent increase in broad stock indexes. Adapting a methodology due to Campbell (1991) and Campbell and Ammer (1993), we find that the effects of unanticipated monetary policy actions on expected excess returns account for the largest part of the response of stock prices.

Notes:

Print version record

April 2004.