Unsurprising Shocks: Information, Premia, and the Monetary Transmission

Silvia Miranda-Agrippino

No 1613, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: The use of narrow time frames to measure monetary policy surprises using interest rate futures is potentially not sufficient to guarantee their exogeneity as proxies for monetary policy shocks. Raw monetary “surprises" are, in fact, predictable. These findings are interpreted as suggesting that time-varying risk premia and news shocks are likely to be captured in the measurement. The resulting violation of the identifying assumptions in Proxy SVARs induces non-trivial distortions in the estimation of the contemporaneous transmission coefficients: consequences for the estimation of structural IRFs can be dramatic, both qualitatively and quantitatively. This paper analyses the informational content of monetary surprises and proposes a new method to construct futures-based external instruments that conditions on both central banks' and market participants' information sets. Identification of monetary policy shocks via the orthogonal proxies is shown to retrieve contemporaneous transmission coefficients that are in line with macroeconomic theory even in small, potentially informationally insufficient VARs.

Keywords: Monetary Surprises; Identification with External Instruments; Monetary Policy; Expectations; Information Asymmetries; Event Study; Proxy SVAR (search for similar items in EconPapers)
JEL-codes: C36 E44 E52 G14 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2015-06, Revised 2016-04
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (69)

Downloads: (external link)
http://www.centreformacroeconomics.ac.uk/Discussio ... MDP2016-13-Paper.pdf Revised version, 2016 (application/pdf)

Related works:
Working Paper: Unsurprising shocks: information, premia, and the monetary transmission (2016)
Working Paper: Unsurprising shocks: information, Premia, and the Monetary Transmission (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1613

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().