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Monetary policy surprises with imperfect information

Author

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  • Jarociński, 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. JEL Classification: E31, E32, E52

Suggested Citation

  • Jarociński, Marek & Karadi, Peter, 2026. "Monetary policy surprises with imperfect information," Working Paper Series 3292, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263292
    Note: 400529
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    Keywords

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    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

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