Deconstructing Monetary Policy Surprises—The Role of Information Shocks
American Economic Journal: Macroeconomics
vol. 12,
no. 2, April 2020
(pp. 1-43)
(Complimentary)
Abstract
Central bank announcements simultaneously convey information about monetary policy and the central bank's assessment of the economic outlook. This paper disentangles these two components and studies their effect on the economy using a structural vector autoregression. It relies on the information inherent in high-frequency co-movement of interest rates and stock prices around policy announcements: a surprise policy tightening raises interest rates and reduces stock prices, while the complementary positive central bank information shock raises both. These two shocks have intuitive and very different effects on the economy. Ignoring the central bank information shocks biases the inference on monetary policy nonneutrality.Citation
Jarociński, Marek, and Peter Karadi. 2020. "Deconstructing Monetary Policy Surprises—The Role of Information Shocks." American Economic Journal: Macroeconomics, 12 (2): 1-43. DOI: 10.1257/mac.20180090Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- G14 Information and Market Efficiency; Event Studies; Insider Trading
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