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A Reassessment of Monetary Policy Surprises and High-Frequency Identification

2022
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Release : 2022
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Book Synopsis A Reassessment of Monetary Policy Surprises and High-Frequency Identification by : Michael D. Bauer

Download or read book A Reassessment of Monetary Policy Surprises and High-Frequency Identification written by Michael D. Bauer. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. We address these concerns in two ways: First, we expand the set of monetary policy announcements to include speeches by the Fed Chair, which doubles the number and importance of announcements; Second, we explain the predictability of the monetary policy surprises in terms of the "Fed response to news" channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data that pre-date the announcement. Our subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on asset prices are largely unchanged; Second, estimates of the effects on the macroeconomy are substantially larger and more significant than what previous studies using high-frequency data have typically found.

High Frequency Identification of Monetary Non-Neutrality

2013 Economics
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Release : 2013
Genre : Economics
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Book Synopsis High Frequency Identification of Monetary Non-Neutrality by : Emi Nakamura

Download or read book High Frequency Identification of Monetary Non-Neutrality written by Emi Nakamura. This book was released on 2013. Available in PDF, EPUB and Kindle. Book excerpt: We provide new evidence on the responsiveness of real interest rates and inflation to monetary shocks. Our identifying assumption is that the increase in the volatility of interest rate news in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about monetary policy. Real and nominal yields and forward rates at horizons out to 3 years move close to one-for-one at these times implying that changes in expected inflation are small. At longer horizons, the response of expected inflation grows. Accounting for "background noise" in interest rates is crucial in identifying the effects of monetary policy on interest rates, particularly at longer horizons. We use structural macroeconomic models to show that the impact of changes in real interest rates on output is small or the impact of changes in output on prices is small or both. Furthermore, our evidence points towards substantial inflation inertia.

NBER Macroeconomics Annual, 2022

2023-05-15 Business & Economics
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Release : 2023-05-15
Genre : Business & Economics
Kind : eBook
Book Rating : 247/5 ( reviews)

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Book Synopsis NBER Macroeconomics Annual, 2022 by : Martin Eichenbaum

Download or read book NBER Macroeconomics Annual, 2022 written by Martin Eichenbaum. This book was released on 2023-05-15. Available in PDF, EPUB and Kindle. Book excerpt: Authoritative takes on the most current and pressing issues in macroeconomics today. The NBER Macroeconomics Annual provides a forum for leading economists to participate in important debates in macroeconomics and to report on major developments in macroeconomic analysis and policy. The NBER Macroeconomics Annual brings together leading scholars to discuss five research papers on central issues in contemporary macroeconomics. First, Andrea Eisfeldt, Antonio Falato, and Mindy Xiaolan document the rise of a new class of worker that receives part of its labor income as equity-based compensation, its role in the recent decline in the labor share of income, and implications for the returns to skilled labor and the implied capital-skill complementarity. Next, Michael Bauer and Eric Swanson focus on monetary policy shocks and argue the correlation between estimated monetary surprises and previously available information can be explained by uncertainty about the parameters of the monetary policy rule. Using new data and methods they find effects of monetary policy on macroeconomic variables that are much larger than previously estimated. Job Boerma and Loukas Karabarbounis provide a framework for quantitatively exploring the gap in wealth between White and Black Americans over the past 150 years and examine the effectiveness of reparations as a tool for closing this gap. Guido Menzio considers workers who do not have rational expectations, and whose “stubborn” beliefs change the response of wages to technology shocks, resulting in sticky wages. He finds that the larger the fraction of workers with stubborn beliefs, the more volatile unemployment is. Finally, Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, and Ludwig Straub investigate the growth—particularly in the United States—of private savings, current account deficits, and fiscal deficits after 2020. They argue that fiscal deficits lead to large and persistent increases in private savings and current account deficits.

The Effects of Unconventional Monetary Policies on Bank Soundness

2014-08-13 Business & Economics
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Release : 2014-08-13
Genre : Business & Economics
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Book Rating : 030/5 ( reviews)

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Book Synopsis The Effects of Unconventional Monetary Policies on Bank Soundness by : Frederic Lambert

Download or read book The Effects of Unconventional Monetary Policies on Bank Soundness written by Frederic Lambert. This book was released on 2014-08-13. Available in PDF, EPUB and Kindle. Book excerpt: Unconventional monetary policy is often assumed to benefit banks. However, we find little supporting evidence. Rather, we find some evidence for heightened medium-term risks. First, in an event study using a novel instrument for monetary policy surprises, we do not detect clear effects of monetary easing on bank stock valuation but find a deterioration of medium-term bank credit risk in the United States, the euro area, and the United Kingdom. Second, in panel regressions using U.S. banks’ balance sheet information, we show that bank profitability and risk taking are ambiguously affected, while balance sheet repair is delayed.

Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach

2022-01-28 Business & Economics
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Release : 2022-01-28
Genre : Business & Economics
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Book Synopsis Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach by : Sangyup Choi

Download or read book Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach written by Sangyup Choi. This book was released on 2022-01-28. Available in PDF, EPUB and Kindle. Book excerpt: By combining industry-level data on output and prices with monetary policy rates for a panel of 88 countries, this paper analyzes how the effects of monetary policy vary with certain industry characteristics. Next to being interesting in their own right, our results are informative on the importance of various transmission mechanisms (as they are expected to vary systematically with the included characteristics). Rather than relying on standard monetary policy shock identification, we overcome the endogeneity problem by taking a differential approach (interacting our monetary policy measure with industry-level characteristics). Our results suggest that monetary contractions reduce output by more in industries featuring assets that are more difficult to collateralize (as predicted by the balance sheet channel) and in industries more reliant on international trade (as predicted by the exchange rate channel). Consistent with the financial accelerator mechanism, we find that the balance sheet channel becomes stronger during bad times. At the same time, we do not find evidence supporting the traditional interest rate channel of monetary policy; the same goes for the cost channel.

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