Monetary policy shocks: We got news!

Sandra Gomes, Nikolay Iskrev and Caterina Mendicino

Journal of Economic Dynamics and Control, 2017, vol. 74, issue C, 108-128

Abstract: We assess the role of monetary policy news shocks in the context of a medium scale DSGE model estimated on US data. We estimate several versions of the model and find decisive evidence in favour of the inclusion of monetary policy news shocks over a two-quarter horizon. According to our results, monetary policy news shocks account for a non-negligible fraction of the variance of real variables, especially at shorter forecast horizons. Further, we document that the importance of monetary policy news shocks goes beyond what was observed in recent years. The historical importance of monetary policy news shocks dates back to the 1999–2006 period when the official FOMC statements provided information about both the current policy setting and the expected future policy path. We also show that adding monetary policy news shocks to the model does not lead to identification problems.

Keywords: DSGE models; Bayesian estimation; News shocks; Local identification; Business cycles; Forward guidance (search for similar items in EconPapers)
JEL-codes: C50 E32 E44 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Monetary policy shocks: We got news! (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:74:y:2017:i:c:p:108-128

DOI: 10.1016/j.jedc.2016.10.010

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