The Low-Frequency Impact of Daily Monetary Policy Shocks
33 Pages Posted: 31 Jan 2011
There are 2 versions of this paper
The Low-Frequency Impact of Daily Monetary Policy Shocks
The Low-Frequency Impact of Daily Monetary Policy Shocks
Date Written: 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.
Keywords: Monetary policy, daily fed funds rate, price puzzle, mixed data frequencies
JEL Classification: C32, C50, E32
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting
By Mario Forni, Marc Hallin, ...
-
Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets
-
By James H. Stock and Mark W. Watson
-
Monetary Policy in a Data-Rich Environment
By Ben S. Bernanke and Jean Boivin
-
Eurocoin: A Real Time Coincident Indicator of the Euro Area Business Cycle
By Filippo Altissimo, Antonio Bassanetti, ...
-
Are More Data Always Better for Factor Analysis?
By Jean Boivin and Serena Ng
-
Implications of Dynamic Factor Models for VAR Analysis
By James H. Stock and Mark W. Watson
-
By Domenico Giannone, Lucrezia Reichlin, ...
-
By Domenico Giannone, Lucrezia Reichlin, ...