The response of asset prices to monetary policy shocks: Stronger than thought

Alessi, Lucia; Kerssenfischer, Mark

doi:10.1002/jae.2706

Cited by 26 publications

(20 citation statements)

References 64 publications

(84 reference statements)

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“…Based on euro area data,Alessi and Kerssenfischer (2016) find similar results for asset prices more generally: Corporate bond yields, exchange rates, and stock and house prices all respond rapidly in the DFM framework, but only delayed and mildly in VARs.…”

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confidence: 62%

The puzzling effects of monetary policy in VARs: Invalid identification or missing information?

Kerssenfischer

2018

J of Applied Econometrics

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Standard vector autoregressions (VARs) often find puzzling effects of monetary policy shocks. Is this due to an invalid (recursive) identification scheme, or because the underlying small-scale VAR neglects important information? I employ factor methods and external instruments to answer this question and provide evidence that the root cause is missing information. In particular, while a recursively identified dynamic factor model yields conventional monetary policy effects across the board, a small-scale VAR identified via external instruments does not. Importantly, the discrepancy between both models largely disappears once the information set of the VAR is augmented via factors. This finding is comforting news for the recent monetary literature. Two leading empirical advances with different underlying assumptions-namely external instruments (applied to a factor-augmented VAR) and dynamic factor models (identified recursively)-find very similar effects of monetary policy shocks, cross-verifying each other.1 Alessi, Barigozzi, and Capasso (2011) provide a review of the literature; for early contributions see Hansen and Sargent (1991), Reichlin (1993, 1994), and Fernández-Villaverde, Rubio-Ramírez, Sargent, and Watson (2007). A prominent empirical application of non-fundamentalness are 18

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confidence: 62%

The puzzling effects of monetary policy in VARs: Invalid identification or missing information?

Kerssenfischer

2018

J of Applied Econometrics

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“…A strand of recent literature emphasizes on the new transmission mechanism measures, and predicts that there will be rapid responses of the economy, particularly towards monetary policy shocks. Using the same high-frequency instruments to identify monetary policy shocks, in their analysis (Alessi & Kerssenfischer, 2019) revealed that large-scale dynamic factor models find overall stronger, as well as quicker asset price reactions, as compared to a benchmarked VAR model. They further suggested that incorporating a sufficiently large information set is crucial in estimating monetary policy effects.…”

Section: Literaturementioning

confidence: 99%

The monetary policy during shocks: an analysis of large Asian economies’ response to COVID-19

Chen

Mahmood

et al. 2021

Economic Research-Ekonomska Istraživanja

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The economies all over the world that have been adversely affected by the COVID-19 pandemic have recently started to devise different strategies to mitigate its consequences. Therefore, in order to dwell deeper into the measures taken by the policy makers around the world, this paper specifically analyzes how the monetary policies have been devised, in response to COVID-19. For this purpose, this paper has taken into consideration a panel of 8 Asian economies that have been affected the most acutely by the virus, have faced multiple lockdowns, and have also experienced other economic restraints, due to this very phenomenon. In order to compare the possible monetary policy options, and their outcomes during the COVID-19 pandemic, this paper refers to the global recession shock, as a valid point of reference. In addition to this, in order to gain access to the empirical evidence, the ARDL methodology has been applied on the quarterly data from 2005Q3 to 2020Q3. The results of the study have indicated that various plans have been taken into consideration, so as to lessen the consequences of these shocks that have trickled down into the respective economies of these countries. That is to put forth that, in the incidence of global recession, the monetary authorities have resorted to a less prudent stance. Whereas, more flexibility, through a persistent decrease in the policy rate has been observed since the pandemic first hit the world. In this regard, our results imply that a successful, efficient and effective response to the economic consequences of COVID-19, would ideally entail a set of remedial policies and structural reforms.

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“…Simultaneously, there are almost no case studies on emerging countries' stock markets, in particular Ukraine. The return of the national stock markets is usually significant and negative to the positive "surprises" of the banking regulators' monetary decisions regarding the discount rate, and vice versa (e.g., Alessi & Kerssenfischer, 2019;Jarociński & Karadi, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Influence of monetary information signals of the USA on the Ukrainian stock market

Pavlov

Гринько

Pavlova

et al. 2020

Investment Management and Financial Innovations

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The stronger the level of economic integration between countries, the greater the need to study the formation patterns of the stock market reaction to the financial information signals. This concerns the Ukrainian stock market, which is now in its infancy, and which reaction to financial information signals is sometimes ambiguous. The research aims to identify the formation patterns of return and volatility indicators of the Ukrainian stock market reaction to the US financial information signals. To assess the direct nature of US financial information signals effect on the PFTS stock index, the GARCH econometric modeling toolkit was applied. The research information base is the PFTS stock index and the Federal Reserve System financial information signals at the discount rate for 2000–2019. The fetch is divided into intervals corresponded to the ascent and decline phases of the financial cycle. It was found that an unforeseen increase in the discount rate at the financial cycle decline phase by 25 basis points decreases the PFTS stock index return, on average by 2.9%. Besides, the hypothesis about the general change stabilizing effect in the discount rate on the Ukrainian stock market volatility at the financial cycle growth phase was confirmed. Nevertheless, for investors, the most essential is the regulator’s monetary signals in the discount rate at the financial cycle decline phases rather than at the ascent phases because there is a more significant increase in the volatility level.

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The response of asset prices to monetary policy shocks: Stronger than thought

Cited by 26 publications

References 64 publications

The puzzling effects of monetary policy in VARs: Invalid identification or missing information?

The puzzling effects of monetary policy in VARs: Invalid identification or missing information?

The monetary policy during shocks: an analysis of large Asian economies’ response to COVID-19

Influence of monetary information signals of the USA on the Ukrainian stock market

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