Working Paper

The Time-Varying Effect of Monetary Policy on Asset Prices

Abstract: This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. I develop an estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks. This is achieved by integrating the surprises into a vector autoregressive model as an exogenous variable. I use current short-term rate surprises because these are least affected by an information effect. When allowing for time-varying model parameters, I find that, compared to the response of output, the reaction of stock and house prices to monetary policy shocks was particularly low before the 2007-09 financial crisis.

JEL Classification: E43; E44; E52; E58; G12;

https://doi.org/10.24148/wp2017-09

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2019-04-01

Number: 2017-09

Note: The first version of this paper was published May 8, 2017.