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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Identifying vars based on high frequency futures data
Jon Faust
Eric T. Swanson
Jonathan H. Wright
Abstract

Using the prices of federal funds futures contracts, we measure the impact of the surprise component of Federal Reserve policy decisions on the expected future trajectory of interest rates. We show how this information can be used to identify the effects of a monetary policy shock in a standard monetary policy VAR. This constitutes an alternative approach to identification that is quite different, and, we would argue, more plausible, than the conventional short-run restrictions. We find that the usual recursive identification of the model is rejected, but we nevertheless agree with the literature's conclusion that only a small fraction of the variance of output can be attributed to monetary policy shocks.


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Jon Faust & Eric T. Swanson & Jonathan H. Wright, Identifying vars based on high frequency futures data, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 720, 2002.
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Keywords: Monetary policy ; Macroeconomics
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