Monetary policy communication shocks and the macroeconomy

Arbeitspapier

Using federal funds futures data, we show the importance of surprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. While Gürkaynak et al. (2005) stress the importance of monetary policy communication for asset prices, much of the subsequent VAR literature attributes all effects of monetary policy on macro variables to surprise changes in the policy rate. Instead, we distinguish between monetary policy action and "communication shocks" (surprise announcements about future policy moves), both orthogonal to internal Fed information. To do so,we use a decomposition of futures price movements exploiting variation across contract maturities. In a monthly sample from 1994 to 2008, our results indicate that it is mainly communication shocks - as opposed to actual rate-change surprises - that affect production in the ways traditionally associated with monetary policy shocks.We also use Eurodollar futures to cover the zero-lower bound period and find strong effects on inflation for long-horizon communication shocks.

Object Details

• ISBN: 978-3-95729-523-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 46/2018

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Federal Funds Futures ; FOMC ; Monetary Policy ; VAR Model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Goodhead, Robert ; Kolb, Benedikt
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/188887
• Last update: 10.03.2025, 11:41 AM CET