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Do macroeconomic announcements move inflation forecasts?

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Author Info

  • Marlene Amstad
  • Andreas M. Fischer

Abstract

This paper presents an empirical strategy that bridges the gap between event studies and macroeconomic forecasts based on common-factor models. Event studies examine the response of financial variables to a market-sensitive "surprise" component using a narrow event window. The authors argue that these features - narrow event window and surprise component - can be easily embedded in common-factor models that study the real-time impact of macroeconomic announcements on key policy variables such as inflation or gross domestic product growth. Demonstrative applications are provided for Swiss inflation that show that (i) the communication of monetary policy announcements generates an asymmetric response for inflation forecasts, (ii) the pass-through effect of import price releases on inflation forecasts is weak, and (iii) macroeconomic releases of real and nominal variables generate nonsynchronized effects for inflation forecasts.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2009)
Issue (Month): Sep ()
Pages: 507-518

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Handle: RePEc:fip:fedlrv:y:2009:i:sep:p:507-518:n:v.91no.5,pt.2

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Keywords: Inflation (Finance) ; Forecasting;

References

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  1. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  2. Roberto Rigobon & Brian Sack, 2008. "Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 335-370 National Bureau of Economic Research, Inc.
  3. Mario Forno & Marco Lippi & Lucrezia Reichlin & Filippo Altissimo & Antonio Bassanetti, 2003. "Eurocoin: A Real Time Coincident Indicator Of The Euro Area Business Cycle," Computing in Economics and Finance 2003 242, Society for Computational Economics.
  4. Amstad, Marlene & Fischer, Andreas M., 2010. "Monthly pass-through ratios," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1202-1213, July.
  5. Marlene Amstad & Andreas M. Fischer, 2008. "Are Weekly Inflation Forecasts Informative?," Working Papers 2008-05, Swiss National Bank.
  6. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Working Papers 1038, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. James D. Hamilton & Oscar Jorda, 2002. "A Model of the Federal Funds Rate Target," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1135-1167, October.
  8. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Lucrezia Reichlin & Giovanni Veronese, 2005. "A core inflation indicator for the Euro area," ULB Institutional Repository 2013/10131, ULB -- Universite Libre de Bruxelles.
  9. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
  10. Michael J. Dueker & Andreas M. Fischer, 2005. "Open mouth operations: a Swiss case study," Monetary Trends, Federal Reserve Bank of St. Louis, issue Jan.
  11. Mario Forni & Filippo Altissimo & Riccardo Cristadoro & Marco Lippi & Giovanni Veronese., 2008. "New Eurocoin: Tracking Economic Growth in Real Time," Center for Economic Research (RECent) 020, University of Modena and Reggio E., Dept. of Economics.
  12. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 665-676, May.
  13. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
  14. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
  15. Marc Hallin & Mario Forni & Marco Lippi & Lucrezia Reichlin, 2003. "Do financial variables help forecasting inflation and real activity in the Euro area ?," ULB Institutional Repository 2013/2123, ULB -- Universite Libre de Bruxelles.
  16. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  17. Ravn, Morten O. & Sola, Martin, 1995. "Stylized facts and regime changes: Are prices procyclical?," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 497-526, December.
  18. Smith, R Todd, 1992. "The Cyclical Behavior of Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 413-30, November.
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Citations

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Cited by:
  1. Amstad, Marlene & Potter, Simon M. & Rich, Robert W., 2014. "The FRBNY staff underlying inflation gauge: UIG," Staff Reports 672, Federal Reserve Bank of New York.
  2. Marlene Amstad & Andreas M. Fischer, 2009. "Monthly pass-through ratios," Globalization and Monetary Policy Institute Working Paper 26, Federal Reserve Bank of Dallas.
  3. Marlene Amstad & Simon Potter, 2009. "Real time underlying inflation gauges for monetary policymakers," Staff Reports 420, Federal Reserve Bank of New York.

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