Monetary policy communication shocks and the macroeconomy

Robert Goodhead and Benedikt Kolb

Economica, 2025, vol. 92, issue 365, 173-198

Abstract: Using high‐frequency identification, we provide evidence that Fed communication surprises have larger macroeconomic effects than surprise actions. Three ingredients are central to show this: structurally distinguishing between Fed actions and communication, controlling for the Fed information effect, and including the surprise measures directly in a vector autoregression (VAR) system instead of using them as instruments. We also compare the macroeconomic effects of Fed communication surprises relating to varying horizons into the future. Fed communication with a two‐year horizon appears most powerful during the effective lower‐bound period, consistent with theoretical predictions regarding Fed forward guidance.

Date: 2025
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https://doi.org/10.1111/ecca.12550

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Working Paper: Monetary policy communication shocks and the macroeconomy (2018)
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