Finance and Economics Discussion Series: What Explains the Stock Market's Reaction to Federal Reserve Policy (Paperback) (ISBN-13: 9781288713219)

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.

Author: Ben S. Bernanke, Kenneth N. Kuttner
ISBN-10: 1288713215
ISBN-13: 9781288713219
Publisher: Bibliogov
Language: English
Published: 02/06/2013
Pages: 60
Format: Paperback
Weight: 0.28lbs
Size: 9.69h x 7.44w x 0.12d