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Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements

Author

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  • Refet Gurkaynak

    (Federal Reserve Board)

  • Brian Sack

    (Federal Reserve Board)

  • Eric Swanson

    (Federal Reserve Board)

Abstract

We investigate the effects of U.S. monetary policy on asset prices using a high frequency event-study analysis. We test whether these effects are adequately captured by a single factor—changes in the federal funds rate target—and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a “current federal funds rate target” factor and a “future path of policy” factor, with the latter closely associated with FOMC statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday dataset going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields.

Suggested Citation

  • Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0504013
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    References listed on IDEAS

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    • E - Macroeconomics and Monetary Economics

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