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Working Paper
Monetary policy and the corporate bond market: How important is the Fed information effect?
Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises ...
Working Paper
The dollar during the global recession: US monetary policy and the exorbitant duty
We document that during the Global Recession, US monetary policy easings triggered the ?exorbitant duty? of the United States, the issuer of the world?s dominant currency, by causing a dollar appreciation and a transfer of wealth from the United States to the rest of the world. This dollar appreciation runs counter to the predictions of standard macroeconomic models and works through two channels: (i) a flight-to-safety effect which lowered the expected excess returns of holding safe US government debt relative to foreign debt and (ii) lowered expected future inflation in the United States ...