Announcement-Specific Decompositions of Unconventional Monetary Policy Shocks and Their Macroeconomic Effects

Abstract

I propose to identify announcement-specific decompositions of asset price changes into monetary policy shocks exploiting heteroskedasticity in intraday data. This approach accommodates both changes in the nature of shocks and the state of the economy across announcements, allowing me to explicitly compare shocks across announcements. I compute decompositions with respect to Fed Funds, forward guidance, asset purchase, and Fed information shocks for 2007-19. Only a handful of announcements spark significant shocks. Both forward guidance and asset purchase shocks lower corporate yields and uncertainty and raise spreads and equities on impact; Fed information shocks raise yields and lower uncertainty. However, only asset purchase shocks significantly stimulate the macroeconomy, raising inflation and industrial production and lowering the unemployment rate.

Keywords: high-frequency identification, time-varying volatility, monetary policy shocks, forward guidance, quantitative easing

JEL Classification: C32, C58, E44, E52, E58