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Monetary Policy Uncertainty

Lucas F. Husted, John Rogers () and Bo Sun ()

No 1215, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We construct new measures of uncertainty about Federal Reserve policy actions and their consequences - monetary policy uncertainty (MPU) indexes. We show that, under a variety of VAR identification schemes, positive shocks to uncertainty about monetary policy robustly raise credit spreads and reduce output. The effects are of comparable magnitude to those of conventional monetary policy shocks. We evaluate the usefulness of our MPU indexes, and examine the influence of Fed communication. Our analysis suggests that policy rate normalization that is accompanied by reduced uncertainty can help neutralize the contractionary effects of the rate increases themselves.

Keywords: Monetary policy uncertainty; VAR identification; FOMC communication (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2017-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Monetary policy uncertainty (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1215

DOI: 10.17016/IFDP.2017.1215

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