Monetary Policy and Financial Conditions

Arnaut-Hull, Zoë; Bauer, Michael D.

Journal Article

Monetary Policy and Financial Conditions

Abstract: Financial conditions indexes summarize a broad range of financial indicators with the goal of measuring how financial markets affect economic activity. Evidence from event studies with high-frequency data supports the view that monetary policy is a key driver of financial conditions. The effects are evident, not only around monetary policy announcements but also, indirectly, around macroeconomic data releases. The impact of inflation surprises on financial conditions has strengthened over the past year, likely due to the perceived implications for the future course of monetary policy.

Keywords: monetary policy; financial conditions; financial markets; economic activity;