Accept cookies Danmarks Nationalbank uses cookies to monitor traffic on our website. This allows us to improve our website and make it more accessible to users. Therefore, we would like you to accept cookies on Danmarks Nationalbank's website. You can delete our cookies at any time.   More about cookies

About us Tasks Notes and coins Euro Monetary policy Market info Statistics Government debt
<< Home / Publications / Our publications
News service Site map Dansk   Search Log on
Financial stability Press room Publications Rules
Back to the frontpage

Our publications

ePUB format for Danmarks Nationalbank´s publications from 2012

Articles from Monetary Review

Monetary reviews

Search our publications


Danmarks Nationalbank | | |QR code for mobile units

WP 75/2011: Has the Fed Reacted Asymmetrically to Stock Prices?

Author(s):Ravn, Søren Hove
Subject:International Economy; Danish economy; Monetary- and foreign-exchange policy; USA; Other economic analyses; Monetary policy
Type:Working Papers
Year of publication:2011
Date of publication:10/10/2011

Yes. Existing studies of the possible role of asset prices in monetary policy implicitly assume that central banks respond to asset price movements in a fully symmetric way. This paper offers a new perspective by allowing for different policy reactions to stock price increases and decreases, respectively. To avoid endogeneity problems, I employ the method of identification through heteroskedasticity. I then demonstrate that the reaction of the Federal Reserve has indeed been asymmetric during the period 1998-2008. While a 5% drop in the S&P 500 index is shown to increase the probability of a 25 basis point interest rate cut by 1/3, no significant reaction to stock price increases can be identified.

Last update: 10/10/2011

Danmarks Nationalbank
Havnegade 5
DK - 1093
Copenhagen K
Contact us Disclaimer

File Attachment Icon