This paper explains the effects of monetary policy surprises on long-term interest rates and stock prices in terms of changes in expected inflation, real interest rate and dividend growth, and relates these effects to markets’ perceptions of economic shocks and Fed’s information set. We...

This paper explains the effects of monetary policy surprises on long-term interest rates and stock prices in terms of changes in expected inflation, real interest rate and dividend growth, and relates these effects to markets' perceptions of economic shocks and Fed's information set. We analyze...

In general equilibrium models, optimal cyclical monetary policy is usually derived around an optimal steady-state inflation level, which in most cases is zero or equal to the negative of the real interest rate. This paper examines whether and how different steady-state inflation levels and other...