The Economics of the Fed Put

101 Pages Posted: 8 May 2020

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER); University of California Berkeley, Haas School of Business

Date Written: April 2020

Abstract

Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed's growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.

Keywords: Fed put, monetary policy, Stock market, Taylor rules, textual analysis

JEL Classification: E44, E52, E58

Suggested Citation

Cieslak, Anna and Vissing-Jorgensen, Annette, The Economics of the Fed Put (April 2020). Available at SSRN: https://ssrn.com/abstract=3594319

Anna Cieslak (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919 660 7879 (Phone)

HOME PAGE: https://sites.google.com/site/ancieslak/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of California Berkeley, Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3
Abstract Views
406
PlumX Metrics