A Structural Approach to High-Frequency Event Studies: The Fed and Markets as Case History
What do markets learn from newsworthy events? We develop a methodology for integrating a high-frequency event study into a macro-finance model and structural estimation, and apply it to Federal Reserve announcements. Beliefs about the economic state and about regime change in future policy jump in response to monetary news and move subjective risk premia through two main channels, macro volatility and a Fed put, with the Fed put accounting for most of the resulting movement in premia. Such jumps often generate positive comovement between short rates and the stock market, erroneously suggesting “Fed information shocks.”
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Copy CitationFrancesco Bianchi, Sydney C. Ludvigson, and Sai Ma, "A Structural Approach to High-Frequency Event Studies: The Fed and Markets as Case History," NBER Working Paper 30072 (2022), https://doi.org/10.3386/w30072.Download Citation
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