Working Papers

2017-09 | July 2018


The Time-Varying Effect of Monetary Policy on Asset Prices


This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. To this end, I develop an estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks. This is achieved by integrating the surprises into a vector autoregressive model as an exogenous variable. I show analytically that this approach identifies the true relative impulse responses. When allowing for time-varying model parameters, I find that, compared to output, the response of stock and house prices to monetary policy shocks was particularly low before the 2007-09 financial crisis.

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Article Citation

Paul, Pascal, Federal Reserve Bank of San FranciscoEmail: . First online version: November 2015., I thank Paul Beaudry, Dario Caldara, Gabriel Chodorow-Reich, Edward Herbst (discussant), Òscar Jordà, Sophocles Mavroeidis, Michele Piffer, Glenn Rudebusch, and Harald Uhlig for detailed comments, Mark Gertler, Peter Karadi, Eric Swanson, and Michiel de Pooter for sharing their data, Anita Todd and Michael Tubbs for excellent research & editorial assistance, and many seminar and conference participants for their insights at the 4th Time Series Econometrics Workshop, the 2017 EEA-ESEM Conference, the 2017 NBER-NSF Seminar on Bayesian Inference in Econometrics and Statistics, the 2017 Spring Macro Committee Meeting of the Federal Reserve, the 2016 IAAE Annual Conference, the 2016 Fall Midwest Macro Meetings, the 2015 OFCE & Sciences Po Paris Empirical Monetary Economics Workshop, Federal Reserve Bank of San Francisco, Norges Bank, the 2018 Research Scrum Conference of the Federal Reserve, and University of Oxford. A previous version was circulated with the title ``The Time Varying Transmission of Monetary Policy Surprises''. Financial support by the German Academic Exchange Service, the German National Academic Foundation, and the David Walton Scholarship is gratefully acknowledged. All errors are my own. The views expressed herein are solely those of the author and do not necessarily reflect the views of the Federal Reserve Bank of San Francisco or the Federal Reserve System., , and July 2018. 2017. "The Time-Varying Effect of Monetary Policy on Asset Prices," Federal Reserve Bank of San Francisco Working Paper 2017-09. Available at