Disentangling Monetary Policy, Central Bank Information, and Fed Response to News Shocks

Marek Jarocinski and Peter Karadi

No 19923, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper identifies three distinct components of high-frequency surprises around FOMC and non-FOMC Fed announcements: (a) a monetary policy shock, (b) a central bank information (CBI) shock, reflecting differences between market and Fed assessments of the economy, and (c) a Fed response to news (FRN) shock, reflecting market misperceptions of the Fed’s policy rule. Identification is achieved by leveraging (i) the high-frequency co-movement of interest rate and stock price surprises, (ii) the predictability of surprises based on public news, and (iii) heteroskedasticity between FOMC and non-FOMC announcements. The paper estimates the dynamic effects of these shocks using daily local projections and a monthly Bayesian VAR. Results confirm the robust presence of the CBI shock. The FRN shock plays a role in daily data but has little impact at the monthly level. The monetary policy shock, purified of CBI and FRN influences, generates impulse responses in line with theoretical predictions.

Keywords: Monetary policy shocks; High-frequency identification; Local projection; Structural vector autoregressions; Fed chair speeches (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2025-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19923 (application/pdf)

Related works:
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:cpr:ceprdp:19923

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19923

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().