Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/232953
Authors: 
Bauer, Michael D.
Swanson, Eric T.
Year of Publication: 
2021
Series/Report no.: 
IMFS Working Paper Series No. 155
Abstract: 
High-frequency changes in interest rates around FOMC announcements are a standard method of measuring monetary policy shocks. However, some recent studies have documented puzzling effects of these shocks on private-sector forecasts of GDP, unemployment, or inflation that are opposite in sign to what standard macroeconomic models would predict. This evidence has been viewed as supportive of a "Fed information effect" channel of monetary policy, whereby an FOMC tightening (easing) communicates that the economy is stronger (weaker) than the public had expected. The authors show that these empirical results are also consistent with a "Fed response to news" channel, in which incoming, publicly available economic news causes both the Fed to change monetary policy and the private sector to revise its forecasts. They provide substantial new evidence that distinguishes between these two channels and strongly favors the latter; for example, regressions that include the previously omitted public macroeconomic news, high-frequency stock market responses to Fed announcements, and a new survey that they conduct of individual Blue Chip forecasters all indicate that the Fed and private sector are simply responding to the same public news, and that there is little if any role for a "Fed information effect".
Subjects: 
Federal Reserve
forecasts
survey
Blue Chip
Delphic forward guidance
JEL: 
E43
E52
E58
Document Type: 
Working Paper

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