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Comment on “Monetary Policy Communication, Policy Slope, and the Stock Market” by Andreas Neuhierl and Michael Weber

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  • Moench, Emanuel
  • Stein, Tobias

Abstract

This note discusses the article “Monetary Policy Communication, Policy Slope, and the Stock Market” by Andreas Neuhierl and Michael Weber. The authors document that the slope of the fed funds futures curve predicts stock returns one week ahead and is correlated with the tone of Fed Board member speeches over the period 1994–2007. We show that this return predictability is restricted to the subsample from 1999 to 2001, with no evidence of predictability outside of this period. We further point out some issues with the proposed measure of monetary policy tone and show that the positive correlation between tone and the fed funds futures slope is driven by two speeches that, when analyzed in detail, do not appear particularly hawkish.

Suggested Citation

  • Moench, Emanuel & Stein, Tobias, 2019. "Comment on “Monetary Policy Communication, Policy Slope, and the Stock Market” by Andreas Neuhierl and Michael Weber," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 156-161.
    • Handle: RePEc:eee:moneco:v:108:y:2019:i:c:p:156-161
    DOI: 10.1016/j.jmoneco.2019.08.020
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    References listed on IDEAS

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    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Stephen Hansen & Michael McMahon, 2016. "Shocking Language: Understanding the Macroeconomic Effects of Central Bank Communication," NBER Chapters, in: NBER International Seminar on Macroeconomics 2015, National Bureau of Economic Research, Inc.
    3. Neuhierl, Andreas & Weber, Michael, 2019. "Monetary policy communication, policy slope, and the stock market," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 140-155.
    4. Leland E. Farmer & Lawrence Schmidt & Allan Timmermann, 2023. "Pockets of Predictability," Journal of Finance, American Finance Association, vol. 78(3), pages 1279-1341, June.
    5. David H. Solomon, 2012. "Selective Publicity and Stock Prices," Journal of Finance, American Finance Association, vol. 67(2), pages 599-638, April.
    6. David O. Lucca & Emanuel Moench, 2015. "The Pre-FOMC Announcement Drift," Journal of Finance, American Finance Association, vol. 70(1), pages 329-371, February.
    7. Apel, Mikael & Blix Grimaldi, Marianna, 2012. "The Information Content of Central Bank Minutes," Working Paper Series 261, Sveriges Riksbank (Central Bank of Sweden).
    8. Miguel Acosta & Ellen E. Meade, 2015. "Hanging on Every Word : Semantic Analysis of the FOMC's Postmeeting Statement," FEDS Notes 2015-09-30, Board of Governors of the Federal Reserve System (U.S.).
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