A Study of Federal Open Market Committee Voting, 1955-64

Purpose After the COVID-19 outbreak, the Federal Reserve has undertaken several monetary policies to alleviate the pandemic consequences on the markets. This paper aims to evaluate the effects of the Federal Reserve monetary policy on the cryptocurrency dynamics during the COVID19 pandemic. Design/methodology/approach We examine the response and feedback effects via an event study methodology. For this purpose, abnormal returns (AR) and cumulative abnormal returns (CARs) around the first FOMC (Federal Open Market Committee) announcement related to the COVID-19 pandemic for the top five cryptocurrencies are explored. We, further investigate the effect of the eight FOMC statement announcements during the COVID19 pandemic on these cryptocurrencies (Bitcoin, Ethereum, Tether, Litecoin, and Ripple). In the above-mentioned crypto-currency markets, we investigate the presence of bubbles by using the PSY test. We then examine the concordance of the dates of these bubbles with the dates of the FOMC announcements. Findings The empirical results show that the first FOMC event has a negative significant effect after 4 days of the announcement date for all studied cryptocurrencies except Tether. The results also indicate that cumulative abnormal returns are significant during the event windows of (−3,8), (−3,9), and (−3,10). Besides, we find that Bitcoin, Ethereum and, Litecoin lived short bubbles lasting for a few days. However, Ripple and Tether markets present no bubbles and no explosive periods. Research limitations/implications This paper presents trained proof that FOMC announcements have a positive effect on volatility's predictive capacity. This work therefore promotes the study of the data quality of volatility in future research as well. Practical implications The justified effect of the FOMC announcements on cryptocurrency as a speculative asset has practical implications for investors in building their trading strategies in anticipation of the next FOMC announcement. Therefore, this study implies that the FOMC announcements contain very relevant information for investors in the cryptocurrency market. This research may not only encourage a better understanding of the evolution of the expectations of policymakers, but also facilitate a better understanding of how these expectations are developed. Originality/value The COVID-19 pandemic has disturbed the stability of financial markets, inciting the Fed to take some monetary regulations. To the best of our knowledge, this study is the first one that analyses the response of five major cryptocurrencies to FOMC announcements during COVID 19 pandemic and associates these dates with bubble occurrences.

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The Effect of FOMC Votes on Financial Markets

Review of Economics and Statistics ◽

10.1162/rest_a_00770 ◽

2019 ◽

Vol 101 (5) ◽

pp. 921-932

Author(s):

Carlos Madeira ◽

João Madeira

Keyword(s):

Monetary Policy ◽

Financial Crisis ◽

Financial Markets ◽

Interest Rates ◽

Stock Prices ◽

Open Market ◽

Federal Open Market Committee ◽

2008 Financial Crisis ◽

Treasury Securities ◽

Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

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Seeing Like the Fed: Culture, Cognition, and Framing in the Failure to Anticipate the Financial Crisis of 2008

American Sociological Review ◽

10.1177/0003122417728240 ◽

2017 ◽

Vol 82 (5) ◽

pp. 879-909 ◽

Cited By ~ 39

Author(s):

Neil Fligstein ◽

Jonah Stuart Brundage ◽

Michael Schultz

Keyword(s):

Decision Making ◽

Financial Crisis ◽

Recent Work ◽

Open Market ◽

Financial Instruments ◽

Federal Open Market Committee ◽

Macroeconomic Theory ◽

Making Sense ◽

Financial Crisis Of 2008 ◽

Positive Light

One of the puzzles about the financial crisis of 2008 is why regulators, particularly the Federal Open Market Committee (FOMC), were so slow to recognize the impending collapse of the financial system and its broader consequences for the economy. We use theory from the literature on culture, cognition, and framing to explain this puzzle. Consistent with recent work on “positive asymmetry,” we show how the FOMC generally interpreted discomforting facts in a positive light, marginalizing and normalizing anomalous information. We argue that all frames limit what can be understood, but the content of frames matters for how facts are identified and explained. We provide evidence that the Federal Reserve’s primary frame for making sense of the economy was macroeconomic theory. The content of macroeconomics made it difficult for the FOMC to connect events into a narrative reflecting the links between foreclosures in the housing market, the financial instruments used to package the mortgages into securities, and the threats to the larger economy. We conclude with implications for the sociological literatures on framing and cognition and for decision-making in future crises.

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