Central Bank Communication: Information and Policy shocks

Nataliia Ostapenko

MPRA Paper from University Library of Munich, Germany

Abstract: The study proposes a novel way to identify the effects of monetary policy shocks taking into account time-varying signals of the central bank. I augment the standard monetary policy Bayesian Vector Autoregression (BVAR) with additional information variables from Fed statements, which allows us to study the information-free effects of monetary policy shocks and to take into account forward-looking information released by the central bank. The results show that, compared to surprises in 3-month federal funds futures, the policy shock identified in this study has a more negative effect on GDP, a more prolonged negative effect on inflation, and a greater impact effect on the excess bond premium. In the short-run it causes S&P500 to decline and the Fed to raise its interest rate. Furthermore, the results of large-scale Bayesian VAR confirm the standard transmission channels of monetary policy.

Keywords: monetary policy; shock; transmission; statements; Latent Dirichlet Alloca- tion; information (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2020-05-22, Revised 2020-06-21
New Economics Papers: this item is included in nep-mac and nep-mon
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Related works:
Working Paper: Central Bank Communication: Information and Policy shocks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:104501

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