33 Pages Posted: 31 Jan 2011
Date Written: January 30, 2011
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
Francis, Neville and Ghysels, Eric and Owyang, Michael, The Low-Frequency Impact of Daily Monetary Policy Shocks (January 30, 2011). Available at SSRN: https://ssrn.com/abstract=1751717 or http://dx.doi.org/10.2139/ssrn.1751717