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Market-Based Monetary Policy Uncertainty

Aeimit Lakdawala, Michael Bauer () and Philippe Mueller
Additional contact information
Philippe Mueller: University of Warwick

No 1403, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Monetary policy announcements are surrounded by substantial uncertainty about the type, direction and magnitude of the policy action. Using a novel, market-based measure of monetary policy uncertainty we document a systematic, predictable pattern over the course of the FOMC meeting cycle: FOMC announcements lead to substantial resolution of uncertainty, which then gradually ramps up over the intermeeting period. Changes in uncertainty about the future policy path capture a distinct second dimension of monetary policy actions that is relevant for the transmission to financial markets. In particular, the Federal Reserve's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path.

Date: 2019
New Economics Papers: this item is included in nep-ifn and nep-mon
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https://economicdynamics.org/meetpapers/2019/paper_1403.pdf (application/pdf)

Related works:
Working Paper: Market-based monetary policy uncertainty (2019) Downloads
Working Paper: Market-Based Monetary Policy Uncertainty (2019) Downloads
Working Paper: Market-Based Monetary Policy Uncertainty (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1403

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