FRIC/Finance Seminar with Nina Boyarchenko, Federal Reserve Bank of New York

FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Nina Boyarchenko, Federal Reserve Bank of New York.

Nina Boyarchenko will present

Market Confidence and Monetary Policy

ABSTRACT
We study the ability of monetary policy announcements to influence interest rates at all maturities as well as asset prices more broadly. Using a novel methodology, we discover two distinct monetary policy shocks. The primary factor is a long rate factor, which we find is related to aggregate uncertainty; the second factor is a traditional Fed funds short-rate shock. We show that the two factors have disparate effects on risky asset returns: the long rate is positively related to the aggregate risk premium while the Fed funds rate is negatively related to inflation expectations and positively related to the value premium. Our results highlight that monetary policy announcements influence market confidence even when there is no change in the stance of monetary policy.