Announcement-Specific Decompositions of Unconventional Monetary Policy Shocks and Their Macroeconomic Effects

63 Pages Posted: 27 Jun 2019 Last revised: 24 May 2021

See all articles by Daniel J. Lewis

Daniel J. Lewis

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: June 1, 2019

Abstract

I propose to identify announcement-specific decompositions of asset price changes into monetary policy shocks exploiting heteroskedasticity in intraday data. This approach accommodates both changes in the nature of shocks and the state of the economy across announcements, allowing me to explicitly compare shocks across announcements. I compute decompositions with respect to Fed Funds, forward guidance, asset purchase, and Fed information shocks for 2007-19. Only a handful of announcements spark significant shocks. Both forward guidance and asset purchase shocks lower corporate yields and uncertainty and raise spreads and equities on impact; Fed information shocks raise yields and lower uncertainty. However, only asset purchase shocks significantly stimulate the macroeconomy, raising inflation and industrial production and lowering the unemployment rate.

Keywords: high-frequency identification, time-varying volatility, monetary policy shocks, forward guidance, quantitative easing

JEL Classification: C32, C58, E44, E52, E58

Suggested Citation

Lewis, Daniel J., Announcement-Specific Decompositions of Unconventional Monetary Policy Shocks and Their Macroeconomic Effects (June 1, 2019). FRB of New York Staff Report No. 891, Rev. May 2021, Available at SSRN: https://ssrn.com/abstract=3409980 or http://dx.doi.org/10.2139/ssrn.3409980

Daniel J. Lewis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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