Journal Article

The evolution of Federal Reserve policy and the impact of monetary policy surprises on asset prices

Abstract: This article describes the joint evolution of Federal Reserve policy and the study of the impact of monetary policy surprises on high-frequency asset prices. Since the 1970s, the Federal Open Market Committee has clarified its objectives and modified its procedures to become more transparent and predictable. Researchers have had to account for these changes to procedures and perceived objectives in developing methods to study the effects of monetary surprises. Unexpected changes to the Committee?s federal funds target and postmeeting statements strongly and consistently affect asset prices, including interest rates, exchange rates, and (for target changes) stock prices. The study of monetary surprises on asset prices provides important insight for policymakers, financial market participants, and economic models.

JEL Classification: E58; E52; G14;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2014

Volume: 96

Issue: 1

Pages: 73-109