Abstract

http://ssrn.com/abstract=1751717
 
 

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The Low-Frequency Impact of Daily Monetary Policy Shocks


Neville Francis


University of North Carolina (UNC) at Chapel Hill - Department of Economics

Eric Ghysels


University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Michael Owyang


Federal Reserve Bank of St. Louis - Research Division

January 30, 2011


Abstract:     
With rare exception, studies of monetary policy tend to neglect the timing of the innovations to the monetary policy instrument. Models which do take timing seriously are often difficult to compare to standard VAR models of monetary policy because of the differences in the frequency that they use. We propose an alternative model using MIDAS regressions which nests both ideas: Accurate (daily) timing of innovations to the monetary policy instrument are embedded in a monthly frequency VAR to determine the macroeconomic effects of high frequency changes to policy. We find that taking into account the timing of the shocks is important and can alleviate some of the puzzles in standard monthly VARs (e.g., the price puzzle). We find that policy shocks are most important to variables thought of as being heavily expectations-oriented and that, contrary to some VAR studies, the effects of FOMC shocks on real variables are small.

Number of Pages in PDF File: 33

Keywords: Monetary policy, daily fed funds rate, price puzzle, mixed data frequencies

JEL Classification: C32, C50, E32

working papers series


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Date posted: January 31, 2011  

Suggested Citation

Francis, Neville and Ghysels, Eric and Owyang, Michael, The Low-Frequency Impact of Daily Monetary Policy Shocks (January 30, 2011). Available at SSRN: http://ssrn.com/abstract=1751717 or http://dx.doi.org/10.2139/ssrn.1751717

Contact Information

Neville Francis
University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )
Chapel Hill, NC 27599
United States
Eric Ghysels (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )
Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)
HOME PAGE: http://www.unc.edu/~eghysels/
Michael Owyang
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
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