What Explains the Stock Market’s Reaction to Federal Reserve Policy?

Essay specific features

 

Issue:

Business

 

Written by:

Lucille R

 

Date added:

January 15, 2016

 

Level:

University

 

Grade:

A

 

No of pages / words:

58 / 15973

 

Was viewed:

1300 times

 

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Essay content:

Adapting a methodology due to Campbell and Ammer, we find that the effects of unanticipated monetary policy actions on expected excess returns account for the largest part of the response of stock prices. THE ULTIMATE OBJECTIVES OF MONETARY POLICY are expressed in terms of macroeconomic variables such as output, employment, and inflation...
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However, the influence of monetary policy instruments on these variables is at best indirect. The most direct and immediate effects of monetary policy actions, such as changes in the Federal funds rate, are on the financial markets; by affecting asset prices and returns, policymakers try to modify economic behavior in ways that will help to achieve their ultimate objectives...
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