We have already considered an example, the effects of the most recent payroll report, in Figure 3. Analyses of this type provide insights for policymakers into the question of what economic factors the “market,” viewed collectively, is focusing on at a given time.
The second type of event study uses market-based measures of policy expectations to analyze the effects of policy changes on the economy. In particular, when the FOMC chooses to set the target for the federal funds rate at a value different from that expected by the market, asset prices tend to react strongly.