Graduation Year

2020

Date of Submission

11-2020

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Richard Burdekin

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© 2020 Jett F Zeimantz

Abstract

The stock market shocks of 2020 caused by the COVID-19 crisis have been met by monetary policy announcements rapidly issued by the central banks of developed economies, signaling a concerted effort to keep markets afloat. Utilizing an ordinary least squares regression, this paper tests whether the monetary policy announcements of the central banks of the United States, Australia, and the United Kingdom served their intended purpose in soothing market reactions via high-frequency event data. For the overall stock market, I find that the Federal Reserve’s announcements boosted market returns of the S&P 500 Index by 4.2%, the All Ordinaries Index by 1.3%, and the FTSE Index by 5.3%. When analyzing each sector, the broad consensus across each country was a jump in response to the Fed’s announcements. However, Australia and the UK experienced adverse market reactions to their own domestic central bank policy announcements. Finally, the US regional banks and US regional bank ETFs met the Fed’s announcements with substantial enthusiasm, but evinced concerns that the Fed’s expansion of its balance sheet could be a catalyst for inflation. Taken together, these results suggest that the Federal Reserve drove the market recovery both domestically and abroad in the latter half of the 2020 with the launch of its novel credit programs. Unprecedented monetary base expansions may soften the blow for the overall stock market, but may pose a looming inflationary threat.

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