Interest Rate Surprises: A Tale of Two Shocks

Ricardo Nunes, Ali Ozdagli and Jenny Tang

No 22-2, Working Papers from Federal Reserve Bank of Boston

Abstract: Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our results show that there is a prominent central bank information component in the widely used high-frequency policy rate surprise measure that needs to be parsed out. When we remove this central bank information component, the estimated effects of monetary policy shocks are more pronounced relative to those estimated using the entire policy rate surprise.

Keywords: monetary policy; central bank information; high-frequency identification; proxy structural VAR; external instruments (search for similar items in EconPapers)
JEL-codes: C36 D83 E52 E58 (search for similar items in EconPapers)
Pages: 39
Date: 2022-01-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Interest Rate Surprises: A Tale of Two Shocks (2023)
Working Paper: Interest Rate Surprises: A Tale of Two Shocks (2023)
Working Paper: Interest Rate Surprises: A Tale of Two Shocks (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:93691

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DOI: 10.29412/res.wp.2022.02

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