The Effects of Monetary Policy "News" and "Surprises"

Fabio Milani and Joh Treadwell ()
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Joh Treadwell: Department of Economics, University of California-Irvine

No 101109, Working Papers from University of California-Irvine, Department of Economics

Abstract: There is substantial agreement in the monetary policy literature over the effects of exogenous monetary policy shocks. The shocks that are investigated, however, almost exclusively represent unanticipated changes in policy, which surprise the private sector and which are typically found to have a delayed and sluggish effect on output. In this paper, we estimate a New Keynesian model that incorporates news about future policies to try to disentangle the anticipated and unanticipated components of policy shocks. The paper shows that the conventional estimates confound two distinct effects on output: an effect due to unanticipated or ìsurpriseî shocks, which is smaller and more short-lived than the response usually obtained in the literature, and a large, delayed, and persistent effect due to anticipated policy shocks or "news." News shocks play a larger role in influencing the business cycle than unanticipated policy shocks, although the overall fraction of economic fluctuations that can be attributed to monetary policy remains limited.

Keywords: Anticipated and unanticipated monetary policy shocks; News shocks; New Keynesian model with news shocks; Effects of monetary policy onoutput (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The Effects of Monetary Policy “News” and “Surprises” (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:101109

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