Working Paper: NBER ID: w10402
Authors: Ben S. Bernanke; Kenneth N. Kuttner
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E44; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unanticipated monetary policy actions (E49) | Expected excess returns (G17) |
| Unanticipated rate cut (E43) | Lower-than-normal excess returns (G19) |
| Monetary policy change (E52) | Stock prices (G19) |
| Unanticipated rate cut (E43) | Stock prices (G19) |