The Low-Frequency Impact of Daily Monetary Policy Shocks
Federal Reserve Bank of St. Louis Working Paper Series 2011-009B
29 Pages Posted: 28 Mar 2011 Last revised: 18 Sep 2012
Date Written: April 19, 2011
With rare exception, studies of monetary policy tend to neglect the timing of innovations to monetary policy instruments. Models which take timing seriously are often difficult to compare to standard monetary VARs because each uses different frequencies. We propose using MIDAS regressions that nests both ideas: Accurate (daily) timing of innovations to policy are embedded in a monthly-frequency VAR to determine the macroeconomic effects of high-frequency policy shocks. We find that policy have greatest effects on variables thought of as heavily expectations oriented and that, contrary to some VAR studies, the effects of policy 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