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The final countdown: the effect of monetary policy during \"Wait-for-It\" and reversal periods

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Abstract

After a long period of loose monetary policy triggered by the Great Recession, some central banks are signaling that they will raise their policy rates soon. Previous research, for example, Bernanke and Kuttner (2005) and Ozdagli (2014), has shown that asset prices react more strongly to monetary policy target surprises on the dates of such a policy reversal announcement. However, we know very little about the channels that generate these effects and whether the cross-sectional differences among firms and sectors play a significant role in transmitting a reversal decision to the economy, a question of primary interest for investors and policymakers.

Suggested Citation

  • Ali Ozdagli, 2015. "The final countdown: the effect of monetary policy during \"Wait-for-It\" and reversal periods," Working Papers 15-15, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:15-15
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    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Ippolito, Filippo & Ozdagli, Ali K. & Perez-Orive, Ander, 2018. "The transmission of monetary policy through bank lending: The floating rate channel," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 49-71.
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    6. Ali Ozdagli, 2014. "Financial Frictions and Reaction of Stock Prices to Monetary Policy Shocks," 2014 Meeting Papers 1360, Society for Economic Dynamics.
    7. Leonardo Melosi, 2017. "Signalling Effects of Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 853-884.
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    16. Ali Ozdagli, 2014. "SNAP: should we be worried about a sudden, sharp rise from low, long-term rates?," Current Policy Perspectives 14-11, Federal Reserve Bank of Boston.
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    Cited by:

    1. Bertsch, Christoph & Hull, Isaiah & Zhang, Xin, 2016. "Fed Liftoff and Subprime Loan Interest Rates: Evidence from the Peer-to-Peer Lending Market," Working Paper Series 319, Sveriges Riksbank (Central Bank of Sweden).

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    More about this item

    Keywords

    monetary policy; stock prices; liftoff; gradualism; forward guidance;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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