Deconstructing Monetary Policy Surprises— The Role of Information Shocks

By Marek Jarociński, P. Karadi. American Economic Journal: Macroeconomics, 2020

921 citations recorded by the source corpus.

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. (JEL D83, E43, E44, E52, E58, G14)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/aa35bc0aee1440b0caed2d3330aaf4d7997011f3

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In Economics and Econometrics

1. Anna Cieślak
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3. J. Rogers
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Citations in the corpus

• The Time-Varying Effect of Monetary Policy on Asset Prices (2017, neutral): “…Campbell, Evans, Fisher, and Justiniano (2012), Campbell, Fisher, Justiniano, and Melosi (2017), Cieslak and Schrimpf (2018), Lakdawala (2017), Jarocinski & Karadi (2018), and Miranda-Agrippino & Ricco (2017) for alternative approaches to identifying the importance or reducing the influence…”
• A unified measure of Fed monetary policy shocks (2019, methodology): “Moving beyond the issue of plausibility of specific observations around liftoff and QE announcements, we provide in Table 1 a comprehensive comparison of our shock series with well-known measures in the literature: Kuttner (2001), Romer and Romer (2004), Nakamura and Steinsson (2018), Swanson (2018)”
• Delphic and odyssean monetary policy shocks: Evidence from the euro area (2018, background): “…Miranda-Agrippino and Ricco (2017) control for the information revealed in survey and staff forecasts in high-frequency monetary policy surprises.6 Jarociński and Karadi (2018)—developed independently of us—also introduce (different) sign and zero restrictions to disentangle a pure monetary…”
• Non-monetary news in central bank communication (2018, methodology): “In particular, we impose monotonicity restrictions across the yield curve as follows: (25)Matheson and Stavrev (2014) and Jarocinski and Karadi (2018) also use sign restrictions to distinguish growth and monetary policy news.”
• The long-run information effect of central bank communication (2019, positive): “For example, Jaroci ́nski and Karadi (2018) find no effect of monetary policy surprises on term premiums in the US.”