A reassessment of monetary policy surprises and high-frequency identification
- High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. The authors address these concerns in two ways: First, they expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, they explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Their subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
Author: | Michael D. BauerORCiDGND, Eric T. SwansonGND |
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URN: | urn:nbn:de:hebis:30:3-617993 |
URL: | https://www.imfs-frankfurt.de/de/forschung/imfs-working-papers/details/mm_publication/detail/publication/a-reassessment-of-monetary-policy-surprises-and-high-frequency-identification.html |
Parent Title (English): | Working paper series / Institute for Monetary and Financial Stability ; 165 |
Series (Serial Number): | Working paper series / Institute for Monetary and Financial Stability (165) |
Publisher: | Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2022 |
Year of first Publication: | 2022 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2022/04/04 |
Tag: | FOMC; SVAR; external instruments; monetary transmission; policy rule |
Issue: | March 15, 2022 |
Page Number: | 70 |
Note: | Draft prepared for the NBER Macroeconomics Annual Conference in Spring 2022. |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS) | |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |