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Asset markets and monetary policy shocks at the zero lower bound

Edda Claus, Iris Claus, Leo Krippner

We quantify the responses of United States asset markets to domestic monetary policy shocks and also gauge the usefulness of shadow short rates as a metric across conventional and unconventional monetary policy environments. Our results show that asset market responses to policy shocks have been larger since short term nominal interest rates reached the zero lower bound. While short maturity interest rates no longer provide a useful metric in that environment, appropriately robust shadow short rates are useful over both environments. The increased responses of asset markets in the unconventional period seem due to larger policy shocks rather than a change to their transmission.