Growth Forecasts and News About Monetary Policy

20 Pages Posted: 16 Nov 2020 Last revised: 6 Jul 2022

See all articles by Nina Karnaukh

Nina Karnaukh

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

Petra Vokata

Ohio State University (OSU) - Department of Finance

Date Written: April 1, 2022

Abstract

We 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 actual future 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 and Vokata, Petra, Growth Forecasts and News About Monetary Policy (April 1, 2022). Fisher College of Business Working Paper No. 2020-03-027, Charles A. Dice Working Paper No. 2020-27, Journal of Financial Economics (JFE), Forthcoming, 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

Petra Vokata

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
117
Abstract Views
651
rank
325,415
PlumX Metrics