IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19923.html

Monetary Policy Surprises with Imperfect Information

Author

Listed:
  • Jarocinski, Marek
  • Karadi, Peter

Abstract

High-frequency interest rate surprises around Fed announcements do not identify monetary policy (MP) shocks if markets are imperfectly informed. Instead, they can also reflect central bank information (CBI) shocks, when the Fed assesses the economy differently, and Fed-response-to-news (FRN) shocks, when markets misperceive the policy rule. The literature treats these as competing explanations; we show they are distinct, and jointly identify all three from the co-movement of interest rate and equity surprises, their predictability from public news, and heteroskedasticity between FOMC and non-FOMC communication. CBI effects are robust at daily and monthly frequencies; FRN matters only daily. Purging both strengthens monetary policy estimates.

Suggested Citation

  • Jarocinski, Marek & Karadi, Peter, 2025. "Monetary Policy Surprises with Imperfect Information," CEPR Discussion Papers 19923, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19923
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19923
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Quineche, Ricardo & Zapata, Juan, 2026. "The two sides of inflation: How price increases and price cuts shape inflation," Economic Modelling, Elsevier, vol. 158(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19923. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.