Monetary policy communication shocks and the macroeconomy

Robert Goodhead and Benedikt Kolb

No 46/2018, Discussion Papers from Deutsche Bundesbank

Abstract: Using federal funds futures data, we show the importance of surprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. While Gürkaynak et al. (2005) stress the importance of monetary policy communication for asset prices, much of the subsequent VAR literature attributes all effects of monetary policy on macro variables to surprise changes in the policy rate. Instead, we distinguish between monetary policy action and "communication shocks" (surprise announcements about future policy moves), both orthogonal to internal Fed information. To do so,we use a decomposition of futures price movements exploiting variation across contract maturities. In a monthly sample from 1994 to 2008, our results indicate that it is mainly communication shocks - as opposed to actual rate-change surprises - that affect production in the ways traditionally associated with monetary policy shocks.We also use Eurodollar futures to cover the zero-lower bound period and find strong effects on inflation for long-horizon communication shocks.

Keywords: Federal Funds Futures; FOMC; Monetary Policy; VAR Model (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 G23 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Monetary policy communication shocks and the macroeconomy (2025)
Working Paper: The cyclicality in SICR: mortgage modelling under IFRS 9 (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:462018

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