The Effect of News Shocks and Monetary Policy

40 Pages Posted: 8 Apr 2019

See all articles by Christoph Görtz

Christoph Görtz

University of Birmingham - Department of Economics

Dimitris Korobilis

University of Glasgow - Adam Smith Business School

John D. Tsoukalas

University of Glasgow - Department of Economics

Francesco Zanetti

University of Oxford

Date Written: 2019

Abstract

A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.

Keywords: news shocks, business cycles, VAR models

JEL Classification: E200, E320, E430, E520

Suggested Citation

Görtz, Christoph and Korobilis, Dimitris and Tsoukalas, John D. and Zanetti, Francesco, The Effect of News Shocks and Monetary Policy (2019). CESifo Working Paper No. 7578. Available at SSRN: https://ssrn.com/abstract=3367214

Christoph Görtz

University of Birmingham - Department of Economics ( email )

United States

Dimitris Korobilis

University of Glasgow - Adam Smith Business School ( email )

40 University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/dimitriskorobilis/

John D. Tsoukalas

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

Francesco Zanetti

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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