TY  - JOUR
AU  - Rigobon,Roberto
AU  - Sack,Brian P.
TI  - The Impact of Monetary Policy on Asset Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8794
PY  - 2002
Y2  - February 2002
UR  - http://www.nber.org/papers/w8794
L1  - http://www.nber.org/papers/w8794.pdf
N1  - Author contact info:
Roberto Rigobon
MIT Sloan School of Management
100 Main Street, E62-516
Cambridge, MA 02142
Tel: 617/258-8374
Fax: 617/258-6855
E-Mail: rigobon@mit.edu

Brian Sack
Executive Vice President and Head of Markets Group
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
E-Mail: brianpsack@gmail.com
AB  - Estimating the response of asset prices to changes in monetary policy is complicated by the endogeneity of policy decisions and the fact that both interest rates and asset prices react to numerous other variables.  This paper develops a new estimator that is based on the heteroskedasticity that exists in high frequency data.  We show that the response of asset prices to changes in monetary policy can be identified based on the increase in the variance of policy shocks that occurs on days of FOMC meetings and of the Chairman's semi-annual monetary policy testimony to Congress.  The identification approach employed requires a much weaker set of assumptions than needed under the 'event-study' approach that is typically used in this context. The results indicate that an increase in short-term interest rates results in a decline in stock prices and in an upward shift in the yield curve that becomes smaller at longer maturities. The findings also suggest that the event-study estimates contain biases that make the estimated effects on stock prices appear too small and those on Treasury yields too large.
ER  -