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

No 1705, BCAM Working Papers from Birkbeck Centre for Applied Macroeconomics

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: 2017-09
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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