The Main Monetary Policy Shock

Christoph E. Boehm, Husang Kim and T. Niklas Kroner

No 13117, CESifo Working Paper Series from CESifo

Abstract: We propose a novel procedure to identify a main monetary policy (MMP) shock as the linear combination of monetary policy surprises that best explains macroeconomic fluctuations. Implemented with two standard high-frequency yield-curve surprises and the Boehm and Kroner (2024) non-yield shock, the MMP shock explains nontrivial business-cycle variation over the last 30 years, in contrast with prior findings. Moreover, the MMP shock differs markedly from a textbook monetary policy shock: a contractionary shock leaves interest rates mostly unchanged but persistently lowers headline prices and appreciates the dollar, while temporarily tightening financial conditions and depressing industrial production.

Keywords: federal reserve; monetary policy; stock market; exchange rates; asset prices; risk premia; information effects; high-frequency identification (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 F31 G10 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_13117

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