The information set of the Feds policy reaction function

Document Type

Conference Proceeding

Publication Title

International Journal of Monetary Economics and Finance

Publication Date

1-1-2019

Abstract

This paper examines the Federal Reserves information set in setting monetary policy. A number of macroeconomic variables are examined during the regimes of Volcker, Greenspan, Bernanke, and Yellen. The empirical findings from the Feds benchmark reaction function indicate that there have been distinct reactions of stock returns to fed funds rate shocks during each different monetary regime. These reactions appear more turbulent and persistent during the Bernanke and Yellen regimes than during the previous Chairs terms. When augmenting the Feds reaction function with variables such as credit and term spreads, the unemployment rate, and financial uncertainty, it was revealed that the Fed might have actually considered each of these magnitudes separately in its deliberations to conduct monetary policy. Finally, stock returns were found to react differently over different phases of the business cycle, following movements in the Feds reaction function, with their reactions additionally found to be dissimilar during each bull and bear stock markets.

Volume

12

Issue

4

First Page

249

Last Page

273

DOI

10.1504/IJMEF.2019.101939

ISSN

17520479

E-ISSN

17520487

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