The time varying effect of monetary policy on stock returns

We find that a surprise increase on the federal funds rate has five times stronger and statistically significant effects on stock returns during 2000–2007, versus statistically insignificant effects during 1989–2000. These differences are not apparent in the bond markets. •Stock returns respond strongly to monetary policy surprises during the 2000s.•Stock returns do not respond to monetary policy surprises during the 1990s.•Bond markets do not demonstrate such time variation.•Monetary policy’s time varying effect is driven by events in the stock market.