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Macroeconomic Effects of Central Bank Communication: Evidence from the Fed

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  • Carlo Rosa
  • Tim Breitenstein

Abstract

This paper employs exogenous measures of monetary policy shocks directly derived from financial market information to investigate how the economy responds to the surprise component of monetary policy decisions as opposed to central bank announcements about future movements in the policy rate. We find that the U.S. economy strongly reacts to the news shock, the difference between what the central bank announces regarding the future direction of monetary policy and what the market expects it to announce. The responses of output and prices to the unexpected component of policy decisions regarding the federal funds target rate are weak and have implausible signs.

Suggested Citation

  • Carlo Rosa & Tim Breitenstein, 2009. "Macroeconomic Effects of Central Bank Communication: Evidence from the Fed," STUDI ECONOMICI, FrancoAngeli Editore, vol. 0(98), pages 5-22.
    • Handle: RePEc:fan:steste:v:html10.3280/ste2009-098001
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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