Marco Pinchetti and Andrzej Szczepaniak
It is certainly not a mystery that the Fed’s monetary policy is of great importance for financial markets and the global economy. However, in a recently published Staff Working Paper, we show that the Fed’s monetary policy measures are not the only valuable piece of information contained in the Fed’s announcements. Changes in the Fed’s economic assessment drive investors’ risk behaviour and international capital allocation decisions. Through this channel, changes in Fed views can affect financial conditions and economic activity in the rest of the world, independent of policy actions.
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