Abstract
Substantial evidence shows that a significant relationship exists between Federal Reserve monetary policy signals and subsequent security returns. Recent evidence, however, suggests that Fed rate changes do not signal shifts in monetary policy and therefore have no real policy significance. In this study, we investigate whether certain Fed signals, characterized as turning points in the monetary cycle, have real policy significance. Our evidence suggests that the Fed's signal that a turning point is occurring is unambiguous, predicts a substantial shift in Fed monetary policy, and provides costless and meaningful information about future security market returns.
Original language | English |
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Pages (from-to) | 477-494 |
Number of pages | 18 |
Journal | Quarterly Review of Economics and Finance |
Volume | 46 |
Issue number | 4 |
DOIs | |
State | Published - Sep 2006 |
Keywords
- Discount rate
- Monetary policy
- Security returns