The Fed and Interest Rates: A High-Frequency Identification

John H. Cochrane () and Monika Piazzesi ()

No 8839, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We measure monetary policy shocks as changes in the Fed funds target rate that surprise bond markets in daily data. These shock series avoid the omitted variable, time-varying parameter, and orthogonalization problem of monthly VARs, and do not impose the expectations hypothesis. We find surprisingly large and persistent responses of bond yields to these shocks. 10 year rates rise as much as 8/10 of a percent to a one percent target shock. The usual view that monetary policy only temporarily raises long term rates and influences inflation would lead one to predict a negative long rate response.

JEL-codes: E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2002-03
Note: AP EFG ME
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