Monetary Policy Uncertainty

60 Pages Posted: 23 Oct 2017

See all articles by Lucas Husted

Lucas Husted

Board of Governors of the Federal Reserve System

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

Bo Sun

Board of Governors of the Federal Reserve System - Division of International Finance

Date Written: 2017-10

Abstract

We construct new measures of uncertainty about Federal Reserve policy actions and their consequences - monetary policy uncertainty (MPU) indexes. We show that, under a variety of VAR identification schemes, positive shocks to uncertainty about monetary policy robustly raise credit spreads and reduce output. The effects are of comparable magnitude to those of conventional monetary policy shocks. We evaluate the usefulness of our MPU indexes, and examine the influence of Fed communication. Our analysis suggests that policy rate normalization that is accompanied by reduced uncertainty can help neutralize the contractionary effects of the rate increases themselves.

Keywords: Monetary policy uncertainty, VAR identification, FOMC communication

JEL Classification: E40, E50

Suggested Citation

Husted, Lucas and Rogers, John H. and Sun, Bo, Monetary Policy Uncertainty (2017-10). FRB International Finance Discussion Paper No. 1215. Available at SSRN: https://ssrn.com/abstract=3056592 or http://dx.doi.org/10.17016/IFDP.2017.1215

Lucas Husted (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2873 (Phone)
202-736-5638 (Fax)

Bo Sun

Board of Governors of the Federal Reserve System - Division of International Finance ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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