Finance Seminar with Carolin Pflueger, University of Chicago

The Department of Finance is proud to announce the upcoming online seminar with Carolin Pflueger, University of Chicago.

Carolin Pflueger will present:

Why Does the Fed Move Markets so Much? A Model of Monetary Policy and Time-Varying Risk Aversion

ABSTRACT
We build a new model integrating a work-horse New Keynesian model with investor risk aversion that moves with the business cycle. We show that the same habit preferences that explain the equity volatility puzzle in quarterly data also naturally explain the large high-frequency stock response to Federal Funds rate surprises. In the model, a surprise increase in the short-term interest rate lowers output and consumption relative to habit, thereby raising risk aversion and amplifying the fall in stocks. The model explains the positive correlation between changes in breakeven inflation and stock returns around monetary policy announcements with long-term inflation news.

Location and sign up:
This is an online seminar on Zoom.
Please contact us in order to sign up.