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The Response of Equity Prices to Movements in Long‐Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound

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  • MICHAEL T. KILEY

Abstract

Monetary policy actions since 2008 have influenced long‐term interest rates through forward guidance and quantitative easing. I propose a strategy to identify the comovement between interest rate and equity price movements induced by monetary policy when an observable representing policy changes is not available. A decline in long‐term interest rates induced by monetary policy statements has a larger positive effect on equity prices prior to 2009 than in the subsequent period. This change appears to reflect the impact of the zero lower bound on short‐term interest rates.

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  • Michael T. Kiley, 2014. "The Response of Equity Prices to Movements in Long‐Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(5), pages 1057-1071, August.
    • Handle: RePEc:wly:jmoncb:v:46:y:2014:i:5:p:1057-1071
    DOI: 10.1111/jmcb.12129
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