Oxford Bulletin of Economics and Statistics (2022)
Matsuoka Hideaki
By Lakdawala Aeimit and Schaffer Matthew
Journal of Banking and Finance (2019)
We study the response of stock prices to monetary policy, distinguishing effects of exogenous shocks from “Delphic” shocks that reveal the Federal Reserve’s macroeconomic forecasts. To decompose monetary policy surprises into these separate components we construct a measure of Federal Reserve private information that exploits differences in central bank and market forecasts. Contractionary policy shocks of either type lower stock prices with exogenous shocks having a larger negative effect. There is some suggestive evidence of an asymmetry; when FOMC meetings are unscheduled or when the fed funds rate reverses direction, stock prices rise in response to a contractionary Delphic shock.
Lakdawala A. and Schaffer M. (2019) Federal Reserve Private Information and the Stock Market. Journal of Banking and Finance.