Monetary Policy and Asset Valuation

We document large, longer term, joint regime shifts in asset valuations and the real federal funds rate- r * $r^{\ast }$ spread. To interpret these findings, we estimate a novel macrofinance model of monetary transmission find that documented regimes coincide with parameters policy rule, long-term consequences for interest rate. Estimates imply two-thirds decline rate since early 1980s is attributable to changes policy. The explains how infrequent stance can generate persistent equity premium.