The FOMC Risk Shift

Project Start:05/2018
Status:Ongoing
Researchers:Nan Hu, Tim Alexander Kroencke, Maik Schmeling, Andreas Schrimpf, Mengjie Shi
Category: Financial Markets
Funded by:LOEWE

We want to construct measures of U.S. monetary policy shocks around FOMC meetings based on a broad menu of assets (fixed income, exchange rates, implied volatility of stocks and bonds, credit default swaps) to better understand the nature of policy surprises. Unexpected monetary policy actions are usually thought to affect the real economy via changes in interest rates which in turn feed into investor wealth via asset prices or into investment decisions by frism. A more recent strand of the literature argues that monetary policy shocks might have a direct effect on risk premia in financial markets which does not operate via interest rates. Our project aims for a better understanding of this "risk-based" channel of monetary policy and especially on the role of interest rates in this transmission channel. We plan to investigate the effect of monetary policy shocks on both asset prices and quantities (fund flows) in an integrated approach.

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