We study the response of stock prices to monetary policy, distinguishing effects of exogenous shocks from “Delphic” shocks that reveal the Federal Reserve’s macroeconomic forecasts. To decompose monetary policy surprises into these separate components we construct a measure of Federal Reserve private information that exploits differences in central bank and market forecasts. Contractionary policy shocks of either type lower stock prices with exogenous shocks having a larger negative effect. There is some suggestive evidence of an asymmetry; when FOMC meetings are unscheduled or when the fed funds rate reverses direction, stock prices rise in response to a contractionary Delphic shock.

This paper examines how competition in the banking sector affects the transmission of monetary policy and the variation of credit expansion across regions in the United States. Using the U.S. branching deregulation between 1994 to 2008 as an exogenous change in banks’ competition, we analyze how bank competition affects monetary policy transmission through the bank lending channel. The results show that competition strengthens the impact of monetary policy on bank loan supply. We then show that states with a more deregulated banking sector were more affected by monetary conditions in the years leading to the Great Recession. Specifically, the effect of loose monetary conditions on the expansion of households’ debt was stronger in states that had fewer bank branching restrictions. The results suggest that variations in the level of bank competition may have amplified regional asymmetries in the years leading to the Great Recession.

This paper studies the relationship between household credit and small business loans using the 1997 liberalization of home equity lending in Texas. First, we build a closed economy general equilibrium model that examines two opposing channels: a negative crowding out effect and a positive collateral effect. Our analysis shows that, following a household credit expansion, the crowding out effect dominates and leads to an overall decline in firm borrowing. We test this result empirically by exploiting the liberalization of home equity loans in Texas. The exogenous increase in household credit brought on by the liberalization results in a crowding out of business lending, as small business loan growth declines by roughly 20 percentage points. This negative effect is dampened in counties that experienced stronger house price growth, providing evidence of a subsidiary collateral effect. We further explore the bank-level factors that could influence the strength of the crowding out effect and find that the effect is weaker for banks with easier access to funding and a specialization in business lending.