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Working Paper
What Are Empirical Monetary Policy Shocks? Estimating the Term Structure of Policy News
Empirical monetary policy shocks (EMPS) mix information about both current andfuture policy. Policy news shocks at different horizons have different macroeconomic effects, so quantifying this mix is essential to use EMPS to evaluate theory. To disentanglethese shocks, we develop an IV method to estimate the term structure of monetary policy news, which captures how an EMPS affects policy residuals at each future horizon.Applying our method to popular monetary policy shocks, we learn that they do not represent textbook surprises Instead, they mix information about policy at many horizons,and ...