Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data

By Jon Faust, J. Rogers, Eric T. Swanson, Jonathan H. Wright. Social Science Research Network, 2003

149 citations recorded by the source corpus.

This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c283c30e3049f12d64ef8d67214183ca5707b79f

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Citations in the corpus

Determinants of Global Spillovers from US Monetary Policy (2015, background): “Kim (2001) and, to a lesser extent, Faust and Rogers (2003) as well as Faust et al. (2003) investigate earlier sample periods in which spillovers might have been smaller due to lower levels of international trade and, in particular, financial integration.”
Fiscal Foresight: Analytics and Econometrics (2008, unknown): “Faust, Rogers, Swanson, and Wright (2003) and Faust, Swanson, and Wright (2004) do not directly address non-invertibility, but they use high-frequency financial data to expand the econometrician’s information set to aid in identifying monetary policy effects.”
Exchange rate puzzles: A tale of switching attractors (2006, unknown): “Goodhart (1989), Goodhart and Figlioli (1991) and more recently Faust et al. (2003) found that most of the changes in the exchange rates occur when there is no observable news in the fundamental economic variables.”
Unconventional Monetary Policy and International Risk Premia (2016, background): “Indeed, these issues are old ones in empirical international finance, predating the recent period of unconventional monetary policy (Eichenbaum and Evans, 1995; Kim, 2001; Kim and Roubini, 2000; Faust et al., 2003), but the answers are potentially different at the ZLB.”
Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts? (2006, methodology): “As in Faust et al. (2003), we interpolate between adjacent eurodollar futures contracts to maintain a constant horizon of about 3 months after each FOMC meeting.”