Can the Fed Talk the Hind Legs off the Stock Market? (replaces EBC DP 2011-017)

S.C.W. Eijffinger, R.J. Mahieu, L.B.D. Raes

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Abstract

Abstract: Central banks infl uence financial markets' expectations of its future policy. By providing its stance on the prospects of the economy, rationalizing past decisions or announcing future actions, central banks affect financial markets' forecasts. In bad times monetary policy communication inducing an upward revision of the path of future policy is good news for stocks. During an expansion the effect is weak and on average negative. The response of equities to central bank talk depends critically on the business cycle. There are strong industry specific effects of monetary policy actions and communication. These industry effects relate to the variation in cyclicality of different industries. Firmspecific effects of monetary policy relate to the leverage, the size and the price-earnings ratio of firms.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages55
Volume2012-006
Publication statusPublished - 2012

Publication series

NameEBC Discussion Paper
Volume2012-006

Keywords

  • Monetary policy
  • Federal Reserve Communication
  • Credit channel
  • Business cycle
  • Stock market

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    Eijffinger, S. C. W., Mahieu, R. J., & Raes, L. B. D. (2012). Can the Fed Talk the Hind Legs off the Stock Market? (replaces EBC DP 2011-017). (EBC Discussion Paper; Vol. 2012-006). EBC.