Abstract: An open question in macro-finance concerns the differing reactions of growth and value stocks to monetary policy. I address this question using a high-frequency event study and find that growth stocks respond significantly more to policy surprises. This finding is consistent across individual stocks, portfolios, and stock indexes and persists for several days post-FOMC announcement. I show that cash flow duration drives these results, contradicting earlier studies that argue that financial constraints are the predominant driver. A decomposition of stock returns indicates that shocks to the risk premium are the predominant channel explaining this difference in sensitivity, aligning with cash flow duration as the primary driver of monetary policy transmission. A model with firm heterogeneity in cash flow duration can simultaneously explain both the stronger sensitivity of growth stocks and the existence of the value premium.
with Annalisa Ferrando and Sara Lamboglia
Abstract: We study how survey-based measures of funding needs and availability influence the transmission of euro area monetary policy to investment. We first provide evidence that funding needs are primarily driven by fundamentals, while perceived funding availability captures financial conditions. Using these two measures, we assess how the effectiveness of monetary policy varies with fundamentals and financial conditions. Our results indicate that monetary policy is most effective when firms’ fundamentals are strong. In contrast, firms with favorable financial conditions exhibit a more muted investment response to monetary policy. By combining these two survey-based measures, we construct an indicator of financial constraints and show that financially constrained firms are more sensitive to monetary policy. These findings offer new light on the transmission of monetary policy to corporate investment, emphasizing not only the role of financial conditions, but also the importance of fundamentals, which are beyond the direct influence of central banks.
Michael D. Bauer, Eric Offner, Glenn D. Rudebusch (2025). Green Stocks and Monetary Policy Shocks: Evidence from Europe. European Economic Review.
Michael D. Bauer, Eric Offner, Glenn D. Rudebusch (2024). The Effect of U.S. Climate Policy on Financial Markets: An Event Study of the Inflation Reduction Act. Advances in Econometrics.
Francesco Audrino and Eric Offner (2024). The Impact of Macroeconomic News Sentiment on Interest Rates. International Review of Financial Analysis.
Crowding Out Corporate Bonds: Government Debt Supply and Currency Choice
with Filippo Busetto, Anna Carruthers, and Andras Lengyel