Monetary Policy Communication Shocks and the Macroeconomy

48 Pages Posted: 7 Dec 2018 Last revised: 21 Feb 2019

See all articles by Robert Goodhead

Robert Goodhead

Central Bank of Ireland

Benedikt Kolb

Deutsche Bundesbank

Date Written: 2018


Using federal funds futures data, we show the importance of surprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. While Gürkaynak et al. (2005) stress the importance of monetary policy communication for asset prices, much of the subsequent VAR literature attributes all effects of monetary policy on macro variables to surprise changes in the policy rate. Instead, we distinguish between monetary policy action and "communication shocks" (surprise announcements about future policy moves), both orthogonal to internal Fed information. To do so,we use a decomposition of futures price movements exploiting variation across contract maturities. In a monthly sample from 1994 to 2008, our results indicate that it is mainly communication shocks - as opposed to actual rate-change surprises - that affect production in the ways traditionally associated with monetary policy shocks.We also use Eurodollar futures to cover the zero-lower bound period and find strong effects on inflation for long-horizon communication shocks.

Keywords: Federal Funds Futures, FOMC, Monetary Policy, VAR Model

JEL Classification: E52, E58, G23, C32

Suggested Citation

Goodhead, Robert and Kolb, Benedikt, Monetary Policy Communication Shocks and the Macroeconomy (2018). Deutsche Bundesbank Discussion Paper No. 46/2018. Available at SSRN:

Robert Goodhead (Contact Author)

Central Bank of Ireland

P.O. Box 559
Dame Street
Dublin, 2

Benedikt Kolb

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

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