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Working Paper
Forward-Looking Monetary Policy and the Transmission of Conventional Monetary Policy Shocks
Standard structural VAR models and estimation using Romer and Romer (2004) monetary policy shocks show that, in samples after the 1980s, a contractionary conventional monetary policy shock generates smaller and sometimes perversely-signed impulse responses compared to earlier samples. Using insights from the central bank information effects literature, we show that the analyses producing these results suffer from an omitted variables problem related to forward-looking information emanating from Federal Reserve forecasts. Transmission of conventional monetary policy shocks takes on the ...
Working Paper
Monetary Policy without Moving Interest Rates: The Fed Non-Yield Shock
Existing high-frequency monetary policy shocks explain surprisingly little variation in stock prices and exchange rates around FOMC announcements. Further, both of these asset classes display heightened volatility relative to non-announcement times. We use a heteroskedasticity-based procedure to estimate a “Fed non-yield shock”, which is orthogonal to yield changes and is identified from excess volatility in the S&P 500 and various dollar exchange rates. A positive non-yield shock raises stock prices in the U.S. and around the globe, and depreciates the dollar against all major ...
Working Paper
Understanding the Aspects of Federal Reserve Forward Guidance
This paper studies the effects of Federal Open Market Committee (FOMC) forward guidance language. I estimate two policy surprises at FOMC meetings: a change in the current federal funds rate and an orthogonal change in the expected path of the federal funds rate. From February 2000 to June 2003, the FOMC only gave forward guidance about risks to the economic outlook, and a surprise increase in the expected federal funds rate path had expansionary effects. This is consistent with models of central bank information effects, where a positive economic outlook causes private agents to revise up ...