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Finance Research Seminars supported by Unigestion

The Swiss Finance Institute at EPFL and the University of Lausanne organize joint research seminars in finance. The seminars attract speakers from academic institutions around the world and cover a variety of topics of interest to both academics and research-oriented professionals.

Unigestion, an independent asset manager, is pleased to support this series of seminars. By encouraging academic research, the firm's aim is to foster innovation in the financial industry.

Information on the seminars is sent regularly via our mailing-list. Do not hesitate subscribe to our mailing-list if you would like to be informed about future seminars.

The seminars usually take place on Fridays from 10:30 am to 12:00 pm in room 126 at Extranef on the campus of the University of Lausanne. Please visit planete.unil.ch/plan for directions

 

The Economics of the Fed Put

Annette VISSING-JORGENSEN (University of California at Berkeley, Haas School of Business)

May 12, 2017  -  10:30-12:00, room Extranef 126

We study the impact of the stock market on the Federal Reserve’s monetary policy. We analyze the economics behind the “Fed put,” i.e., the tendency for low stock returns to predict accommodating monetary policy. We show that stock returns are a statistically more powerful predictor of Federal funds target changes than standard macroeconomic news releases. Using textual analysis of FOMC minutes and transcripts, we then argue that stock returns cause Fed policy. FOMC participants are more likely to be concerned about the stock market after market declines and the frequency of negative stock market mentions in FOMC documents predicts target rate cuts. The focus on the stock market reflects Fed’s concern about the consumption-wealth effect and about the impact of the stock market on investment, with less role for the stock market simply predicting (as opposed to driving) the economy. We assess whether the Fed may be reacting too much to the stock market by (a) comparing the sensitivity to the stock market of the Fed’s growth, unemployment and inflation forecasts with the stock-market sensitivity of private sector forecasts, and (b) estimating whether the stock market impacts target changes even after controlling for Fed expectations of economic activity and inflation.

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