American Economic Review Vol. 115 No. 1 2025

Whatever It Takes? The Impact of Conditional Policy Promises

Valentin Haddad¹; Alan Moreira²; Tyler Muir¹

¹ UCLA Anderson School of Management and NBER () · ² University of Rochester Simon Graduate School of Business and NBER ()

Abstract

At the announcement of a new policy, agents form a view of state-contingent policy actions and impact. We develop a method to estimate this state-contingent perception and implement it for many asset-purchase interventions worldwide. Expectations of larger support in bad states—“policy puts”—explain a large fraction of the announcements' impact. For example, when the Fed introduced purchases of corporate bonds in March 2020, markets expected five times more price support had conditions worsened relative to the median scenario. Perceived promises of additional support in bad states alter asset prices, risk, and the response to future announcements.

DOI

10.1257/aer.20230486

Volume

115

Issue

1

Pages

295-329

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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