This paper by Roberto Rigobon and Brian Sack explores the impact of monetary policy on asset prices, addressing the challenges posed by the endogeneity of policy decisions and the influence of other variables. The authors develop a new estimator based on the heteroskedasticity in high-frequency data, specifically focusing on the increase in the variance of policy shocks on days of FOMC meetings and the Chairman's semi-annual monetary policy testimony to Congress. This approach allows for a weaker set of assumptions compared to the "event-study" method commonly used in this context. The results indicate that an increase in short-term interest rates leads to a decline in stock prices and an upward shift in the yield curve, with the magnitude of the shift becoming smaller at longer maturities. The paper also suggests that event-study estimates contain biases, making the estimated effects on stock prices appear too small and those on Treasury yields too large. The authors provide a detailed econometric framework and implement their estimator using instrumental variables, demonstrating its effectiveness through hypothesis tests. The findings highlight the significant impact of monetary policy on asset prices, particularly stock prices, and suggest that the event-study approach may introduce substantial biases.This paper by Roberto Rigobon and Brian Sack explores the impact of monetary policy on asset prices, addressing the challenges posed by the endogeneity of policy decisions and the influence of other variables. The authors develop a new estimator based on the heteroskedasticity in high-frequency data, specifically focusing on the increase in the variance of policy shocks on days of FOMC meetings and the Chairman's semi-annual monetary policy testimony to Congress. This approach allows for a weaker set of assumptions compared to the "event-study" method commonly used in this context. The results indicate that an increase in short-term interest rates leads to a decline in stock prices and an upward shift in the yield curve, with the magnitude of the shift becoming smaller at longer maturities. The paper also suggests that event-study estimates contain biases, making the estimated effects on stock prices appear too small and those on Treasury yields too large. The authors provide a detailed econometric framework and implement their estimator using instrumental variables, demonstrating its effectiveness through hypothesis tests. The findings highlight the significant impact of monetary policy on asset prices, particularly stock prices, and suggest that the event-study approach may introduce substantial biases.