Growth Forecasts and News About Monetary Policy

Fisher College of Business Working Paper No. 2020-03-027

Charles A. Dice Working Paper No. 2020-27

26 Pages Posted: 16 Nov 2020

See all articles by Nina Karnaukh

Nina Karnaukh

Ohio State University; Fisher College of Business - Department of Finance

Date Written: October 31, 2020

Abstract

I find that 30-minute changes in bond yields around scheduled Federal Open Market Committee (FOMC) announcements are predictable with the pre-FOMC Blue Chip professionals’ revisions in GDP growth forecasts. A positive pre-FOMC GDP growth revision predicts a contractionary policy news shock (positive change in bond yields), a negative GDP growth revision predicts an expansionary policy news shock (negative change in bond yields). Failing to account for this predictability biases the estimates of monetary policy effects on the economy. First, the Fed’s information effect dissipates as the truly unpredictable policy news shock does not affect professionals’ beliefs about the economy. Second, net policy shock has a more negative impact on future actual GDP, than the raw policy shock.

Keywords: monetary policy news, growth forecasts, federal funds futures, predictability

JEL Classification: E43, E52, G12, G17

Suggested Citation

Karnaukh, Nina, Growth Forecasts and News About Monetary Policy (October 31, 2020). Fisher College of Business Working Paper No. 2020-03-027, Charles A. Dice Working Paper No. 2020-27, Available at SSRN: https://ssrn.com/abstract=3730133 or http://dx.doi.org/10.2139/ssrn.3730133

Nina Karnaukh (Contact Author)

Ohio State University; Fisher College of Business - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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