The Low-Frequency Impact of Daily Monetary Policy Shocks

33 Pages Posted: 31 Jan 2011  

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

Multiple version iconThere are 2 versions of this paper

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

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

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 T. Owyang

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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