The Impact of Federal Reserve Monetary Policy Announcements on Asset Prices: A Review

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicle

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2019 - 1

Title

The Impact of Federal Reserve Monetary Policy Announcements on Asset Prices: A Review

Author

Carlo Rosa

Publisher

Vita e Pensiero

Format

Article |

Pdf

Online da

07-2019

Doi

10.26350/000518_000023

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

This paper examines the evolution of the financial market impact of Federal Reserve monetary policy announcements. I begin by describing the changes in Federal Open Market Committee (FOMC) communication practices, especially during and after the recent financial crisis. Then, I discuss the financial market effects of three types of monetary policy announcements: decisions about the current level of the federal funds target rate, forward guidance about the future path of the federal funds rate, and announcements about future large-scale asset purchases. The existing literature has reached a consensus that Federal Reserve actions, such as changes in the federal funds target rate and asset purchases, and communication have economically important and highly significant effects on asset prices. Moreover, Fed communications and asset purchases were effective monetary policy tools during the 2008-2015 period. Hence, the Federal Reserve has not been significantly constrained by the zero lower bound on policy rates.