The Response of Equity Prices to Movements in Long-Term Interest Rates Associated with Monetary Policy Statements: Before and After the Zero Lower Bound



  • I would like to thank colleagues in the Federal Reserve System for helpful discussions, comments, and guidance with respect to the data, especially Jim Clouse, Stefania D'Amico, Canlin Li, and Matt Raskin. The views expressed herein are those of the author, and do not reflect the views of the Federal Reserve Board or its staff.


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.