The effects of monetary policy announcements on financial indicators: An application on the USA with the ARDL approach

This study aims to examine the effects of monetary policy announcements on various financial indicators in the United States. The primary objective is to analyze the short- and long-term impacts of changes in the policy interest rate on financial market dynamics. In this context, three different ARDL (Autoregressive Distributed Lag) models were estimated using monthly data from the period 2011 to 2024. In the first model, the dependent variable is sp500 index (LNSP500), while the second and third models focus on the dollar index (LNDI) and money supply (LNM2) in relation to exchange rate, stock market index, and volatility indicators. In each model, the federal funds rate (FEDFUNDS) is used as the key variable representing monetary policy announcements. Bounds tests indicate the presence of long-run cointegration relationships among variables, and the error correction models demonstrate that short-term deviations adjust back to the long-run equilibrium. Diagnostic test results confirm that the estimated models are statistically reliable and valid. The findings show that monetary policy has significant effects not only on traditional macroeconomic variables but also on financial markets. Accordingly, transparency in communication and the timing of interest rate decisions are essential for shaping investor expectations and maintaining financial stability.