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Working Paper
Monetary policy through production networks: evidence from the stock market
Weber, Michael; Ozdagli, Ali K. (2017-10-01)
Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production ...
Working Papers , Paper 17-15

Report
Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms
Ajello, Andrea; Boyarchenko, Nina; Gourio, François; Tambalotti, Andrea (2022-02-01)
This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit ...
Staff Reports , Paper 1002

Working Paper
Market-Based Monetary Policy Uncertainty
Bauer, Michael D.; Lakdawala, Aeimit K.; Mueller, Philippe (2021-02-20)
This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the ...
Working Paper Series , Paper 2019-12

Report
The Bitcoin–Macro Disconnect
Benigno, Gianluca; Rosa, Carlo (2023-02-01)
This paper investigates the link between Bitcoin and macroeconomic fundamentals by estimating the impact of macroeconomic news on Bitcoin using an event study with intraday data. The key result is that, unlike other U.S. asset classes, Bitcoin is orthogonal to monetary and macroeconomic news. This disconnect is puzzling as unexpected changes in discount rates should, in principle, affect the price of Bitcoin even when interpreting Bitcoin as a purely speculative asset.
Staff Reports , Paper 1052

Working Paper
“Good” Inflation, “Bad” Inflation: Implications for Risky Asset Prices
Bonelli, Diego; Palazzo, Berardino; Yamarthy, Ram S. (2025-01-06)
Using inflation swap prices, we study how changes in expected inflation affect firm-level credit spreads and equity returns, and uncover evidence of a time-varying inflation sensitivity. In times of “good inflation,” when inflation news is perceived by investors to be more positively correlated with real economic growth, movements in expected inflation substantially reduce corporate credit spreads and raise equity valuations. Meanwhile in times of “bad inflation,” these effects are attenuated and the opposite can take place. These dynamics naturally arise in an equilibrium asset ...
Finance and Economics Discussion Series , Paper 2025-002

Journal Article
The Economic Effects of a Potential Armed Conflict Over Taiwan
Neely, Christopher J. (2025-02-26)
This article examines the likely economic effects of a Chinese invasion or blockade of Taiwan for the U.S. and the world by considering historical precedents. Such a conflict would likely produce a flight-to-safety in the asset market, huge disruptions in international trade, and banking problems, and it would greatly exacerbate existing fiscal pressures. The authorities of the People’s Republic of China would probably try to sell U.S. and other western securities prior to a conflict to avoid sanctions on those assets. Such sales would be temporarily disruptive but would likely have only ...
Review , Volume 107 , Issue 3 , Pages 1-23

Report
Intergenerational Redistribution in the Great Recession
Heathcote, Jonathan; Krueger, Dirk; Rios-Rull, Jose-Victor; Glover, Andrew (2014-05-20)
We construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of big recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase ...
Staff Report , Paper 498

Working Paper
How Can Asset Prices Value Exchange Rate Wedges?
Lewis, Karen K.; Liu, Edith X. (2022-11-07)
When available financial securities allow investors to optimally diversify risk across countries, standard theory implies that exchange rates should reflect this behavior. However, exchange rates observed in the data deviate from these predictions. In this paper, we develop a framework to value the welfare costs of these exchange rate wedges, as disciplined by asset returns. This framework applies to a general class of asset pricing and exchange rate models. We further decompose the value of these wedges into components, showing that the ability of goods markets to respond to financial ...
Finance and Economics Discussion Series , Paper 2022-075

Working Paper
The Transmission of the Financial Crisis in 1907: An Empirical Investigation
Tallman, Ellis W.; Moen, Jon R. (2014-09-03)
Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863-1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks, and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when ...
Working Papers (Old Series) , Paper 1409

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