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The Response of Equity Prices to Movements in Long‐Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound
Author(s) -
KILEY MICHAEL T.
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12129
Subject(s) - zero lower bound , economics , monetary policy , interest rate , equity (law) , monetary economics , forward guidance , term (time) , nominal interest rate , credit channel , inflation targeting , real interest rate , physics , quantum mechanics , political science , law
Monetary policy actions since 2008 have influenced long‐term interest rates through forward guidance and quantitative easing. I propose a strategy to identify the comovement between interest rate and equity price movements induced by monetary policy when an observable representing policy changes is not available. A decline in long‐term interest rates induced by monetary policy statements has a larger positive effect on equity prices prior to 2009 than in the subsequent period. This change appears to reflect the impact of the zero lower bound on short‐term interest rates.