The Term Structure of Monetary Policy News

Jonathan Adams and Philip Barrett ()
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Philip Barrett: International Monetary Fund

No 1017, Working Papers from University of Florida, Department of Economics

Abstract: Empirical monetary policy shocks (EMPS) contain information about monetary policy both today and in the future. We define the term structure of monetary policy news as the marginal impact of an EMPS on the policy residual at each horizon. Policy news at different horizons has different effects, so knowing the term structure is necessary in order to use an EMPS to evaluate theory. We develop an IV method to estimate this term structure. We find that most EMPS in the literature convey more information about policy in future than in the present, but there is substantial heterogeneity. We use the estimated term structures to construct synthetic forward guidance and surprise shocks, and estimate their macroeconomic effects. Surprise interest rate hikes exhibit an "output puzzle", but forward guidance about future rate increases is deeply contractionary.

JEL-codes: E32 E43 E52 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ufl:wpaper:001017

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