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Monetary policy uncertainty

Author

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  • Husted, Lucas
  • Rogers, John
  • Sun, Bo

Abstract

We construct a new measure of uncertainty about Federal Reserve policy actions and their consequences, a monetary policy uncertainty (MPU) index. We evaluate the information content of our index and document the usefulness of our index in bridging periods of conventional and unconventional policy making. We also estimate the aggregate effects of shocks to MPU on output, credit spreads, and other variables. Finally, we investigate the transmission channels of MPU, finding that heightened MPU leads to protracted declines in firm investment through both real options and financial frictions channels.

Suggested Citation

  • Husted, Lucas & Rogers, John & Sun, Bo, 2020. "Monetary policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 20-36.
    • Handle: RePEc:eee:moneco:v:115:y:2020:i:c:p:20-36
    DOI: 10.1016/j.jmoneco.2019.07.009
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    More about this item

    Keywords

    Monetary transmission; Uncertainty index; Firm-level investment; Textual analysis;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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