A New Measure of Monetary Policy Shocks

Abstract

This paper constructs a new measure of monetary policy shocks that is orthogonal to fundamentals by combining the high-frequency approach of Gurkaynak et al. (2005) and Romer and Romer (2004)'s narrative approach. The empirical features of the new measure are: (i) contractionary monetary policy surprises revise the private sectors' unemployment rate expectation upward and inflation expectation downward; (ii) the hypothesis that the new measure is white noise cannot be rejected at both the daily and the monthly frequency; (iii) the new measure has insignificant effects on the long-term real rates; (iv) the new measure co-moves negatively with the current stock prices and the stock price futures.

Keywords: monetary policy, high frequency identification, private forecasts

JEL Classification: E30, E40, E50