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Looking Beyond the Fed: Do Central Banks Cause Information Effects?

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  • Christopher D. Cotton

Abstract

The importance of central bank information effects is the subject of an ongoing debate. Most work in this area focuses on the limited number of monetary policy events at the Federal Reserve. I assess the degree to which nine other central banks cause information effects. This analysis yields a much larger panel of primarily novel events. Following a surprise monetary tightening, economic forecasts improve in line with information effects. However, I find this outcome is driven by the predictability of monetary policy surprises and not information effects. My results support the view that central bank information effects may be overstated.

Suggested Citation

  • Christopher D. Cotton, 2022. "Looking Beyond the Fed: Do Central Banks Cause Information Effects?," Working Papers 22-21, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:95344
    DOI: 10.29412/res.wp.2022.21
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    References listed on IDEAS

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    1. Faust Jon & Swanson Eric T & Wright Jonathan H, 2004. "Do Federal Reserve Policy Surprises Reveal Superior Information about the Economy?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-31, October.
    2. Michael D. Bauer & Eric T. Swanson, 2020. "The Fed's Response to Economic News Explains the "Fed Information Effect"," CESifo Working Paper Series 8151, CESifo.
    3. Jeffrey R. Campbell & Charles L. Evans & Jonas D.M. Fisher & Alejandro Justiniano, 2012. "Macroeconomic Effects of Federal Reserve Forward Guidance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 1-80.
    4. Frankel, Alex & Kartik, Navin, 2018. "What kind of central bank competence?," Theoretical Economics, Econometric Society, vol. 13(2), May.
    5. Kurt G. Lunsford, 2020. "Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance," American Economic Review, American Economic Association, vol. 110(9), pages 2899-2934, September.
    6. Philippe Andrade & Gaetano Gaballo & Eric Mengus & Benoît Mojon, 2019. "Forward Guidance and Heterogeneous Beliefs," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 1-29, July.
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    Cited by:

    1. Christopher D. Cotton, 2022. "To What Degree and through Which Channel Do Central Banks Other Than the Federal Reserve Cause Spillovers?," Working Papers 23-3, Federal Reserve Bank of Boston.
    2. Christopher D. Cotton, 2025. "The Predictability of Global Monetary Policy Surprises," Working Papers 25-14, Federal Reserve Bank of Boston.

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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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