Search Results
Working Paper
Risk Appetite and Monetary Transmission
We construct a new high-frequency measure of risk appetite shifts around Federal Open Market Committee (FOMC) meetings, the common component of changes in risk-sensitive indicators. Fed policy actions and communication have substantial effects on risk appetite. Interest-rate surprises explain only about one-fifth of the variation in risk appetite, so most policy-induced changes in risk asset prices are orthogonal to the expected rate path. We therefore use both surprises as external instruments in a proxy SVAR with two separately identified shocks. Risk appetite shocks have large and ...
Working Paper
Interest Rate Surprises: A Tale of Two Shocks
Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our ...
Working Paper
Interest Rate Surprises: A Tale of Two Shocks
Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our ...
Working Paper
Inference in Bayesian Proxy-SVARs
Motivated by the increasing use of external instruments to identify structural vector autoregressions (SVARs), we develop algorithms for exact finite sample inference in this class of time series models, commonly known as proxy-SVARs. Our algorithms make independent draws from the normal-generalized-normal family of conjugate posterior distributions over the structural parameterization of a proxy-SVAR. Importantly, our techniques can handle the case of set identification and hence they can be used to relax the additional exclusion restrictions unrelated to the external instruments often ...
Working Paper
Inference in Bayesian Proxy-SVARs
Motivated by the increasing use of external instruments to identify structural vector autoregressions (SVARs), we develop an algorithm for exact finite sample inference in this class of time series models, commonly known as Proxy-SVARs. Our algorithm makes independent draws from any posterior distribution over the structural parameterization of a Proxy-SVAR. Our approach allows researchers to simultaneously use proxies and traditional zero and sign restrictions to identify structural shocks. We illustrate our methods with two applications. In particular, we show how to generalize the ...
Working Paper
An Analysis of the Literature on Monetary Policy Shocks
Monetary policy has been the primary tool of macroeconomic management since the 1970s. As a result, the effects of monetary shocks became an important area of policy research. In the 1980s, event studies showed that U.S. monetary-aggregate announcements strongly affected asset prices, although no single model readily explained the responses. Greater central-bank transparency in the 1980s and 1990s increased interest in measuring monetary policy's effects on financial and macroeconomic variables. In the 1990s, researchers predominantly used vector autoregressions (VARs) to estimate the effects ...