Deconstructing Monetary Policy Surprises— The Role of Information Shocks

Marek Jarociński; Peter Karadi

doi:10.1257/mac.20180090

journal article Apr 01, 2020

Deconstructing Monetary Policy Surprises— The Role of Information Shocks

Marek Jarociński Peter Karadi

American Economic Journal: Macroeconomics Vol. 12 No. 2 pp. 1-43 · American Economic Association

View at Publisher Save 10.1257/mac.20180090

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

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Citations

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References

Details

Published: Apr 01, 2020
Vol/Issue: 12(2)
Pages: 1-43

Authors

M

Marek Jarociński

Directorate General Research, European Central Bank, Sonnemannstrasse 20, Frankfurt am Main 60640, Germany (email: )

P

Peter Karadi

Directorate General Research, European Central Bank, Sonnemannstrasse 20, Frankfurt am Main 60640, Germany and CEPR (email: )

Cite This Article

Marek Jarociński, Peter Karadi (2020). Deconstructing Monetary Policy Surprises— The Role of Information Shocks. American Economic Journal: Macroeconomics, 12(2), 1-43. https://doi.org/10.1257/mac.20180090

Deconstructing Monetary Policy Surprises— The Role of Information Shocks

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