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Federal Reserve Bank of San Francisco
Working Paper Series
The Time-Varying Effect of Monetary Policy on Asset Prices
Pascal Paul
Abstract

This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. To this end, 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 show analytically that this approach identifies the true relative impulse responses. When allowing for time-varying model parameters, I find that, compared to output, the response of stock and house prices to monetary policy shocks was particularly low before the 2007-09 financial crisis.


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Pascal Paul, The Time-Varying Effect of Monetary Policy on Asset Prices, Federal Reserve Bank of San Francisco, Working Paper Series 2017-9, 08 May 2017, revised 02 Jan 2018.
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Note: First online version: November 2015.
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DOI: 10.24148/wp2017-09
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