The Effect of News Shocks and Monetary Policy

Gambetti, Luca; Korobilis, Dimitris; Tsoukalas, John; Zanetti, Francesco

The Effect of News Shocks and Monetary Policy

Luca Gambetti, Dimitris Korobilis, John Tsoukalas and Francesco Zanetti

Working Paper series from Rimini Centre for Economic Analysis

Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.

Keywords: News shocks; Business cycles; VAR models; DSGE models (search for similar items in EconPapers)
JEL-codes: E20 E32 E43 E52 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:18-19

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