IDEAS home Printed from https://ideas.repec.org/p/fip/fedbwp/95344.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.bostonfed.org/publications/research-department-working-paper/2022/looking-beyond-the-fed-do-central-banks-cause-information-effects
    File Function: Summary
    Download Restriction: no
    File URL: https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/2022/wp2221.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.29412/res.wp.2022.21?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Frankel, Alex & Kartik, Navin, 2018. "What kind of central bank competence?," Theoretical Economics, Econometric Society, vol. 13(2), May.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gürkaynak, Refet S. & Kara, A. Hakan & Kısacıkoğlu, Burçin & Lee, Sang Seok, 2021. "Monetary policy surprises and exchange rate behavior," Journal of International Economics, Elsevier, vol. 130(C).
    2. Karnaukh, Nina & Vokata, Petra, 2022. "Growth forecasts and news about monetary policy," Journal of Financial Economics, Elsevier, vol. 146(1), pages 55-70.
    3. Assenmacher, Katrin & Glöckler, Gabriel & Holton, Sarah & Trautmann, Peter & Ioannou, Demosthenes & Mee, Simon & Alonso, Conception & Argiri, Eleni & Arigoni, Filippo & Bakk-Simon, Klára & Bergbauer, , 2021. "Clear, consistent and engaging: ECB monetary policy communication in a changing world," Occasional Paper Series 274, European Central Bank.
    4. George-Marios Angeletos & Chen Lian, 2018. "Forward Guidance without Common Knowledge," American Economic Review, American Economic Association, vol. 108(9), pages 2477-2512, September.
    5. Barthélemy, Jean & Mengus, Eric, 2018. "The signaling effect of raising inflation," Journal of Economic Theory, Elsevier, vol. 178(C), pages 488-516.
    6. repec:hal:spmain:info:hdl:2441/713kqq1pgu80lr8fn0lsuuh8lf is not listed on IDEAS
    7. Leombroni, Matteo & Vedolin, Andrea & Venter, Gyuri & Whelan, Paul, 2021. "Central bank communication and the yield curve," Journal of Financial Economics, Elsevier, vol. 141(3), pages 860-880.
    8. Christopher S. Sutherland, 2020. "Forward Guidance and Expectation Formation: A Narrative Approach," Staff Working Papers 20-40, Bank of Canada.
    9. Goy, Gavin & Hommes, Cars & Mavromatis, Kostas, 2022. "Forward guidance and the role of central bank credibility under heterogeneous beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1240-1274.
    10. Couture, Cody, 2021. "Financial market effects of FOMC projections," Journal of Macroeconomics, Elsevier, vol. 67(C).
    11. Gáti, Laura, 2023. "Monetary policy & anchored expectations—An endogenous gain learning model," Journal of Monetary Economics, Elsevier, vol. 140(S), pages 37-47.
    12. Julien Pinter & Evzen Kocenda, 2021. "Media Treatment of Monetary Policy Surprises and Their Impact on Firms' and Consumers' Expectations," Working Papers IES 2021/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2021.
    13. Andrade, Philippe & Ferroni, Filippo, 2021. "Delphic and odyssean monetary policy shocks: Evidence from the euro area," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 816-832.
    14. Emi Nakamura & Jón Steinsson, 2018. "High-Frequency Identification of Monetary Non-Neutrality: The Information Effect," The Quarterly Journal of Economics, Oxford University Press, vol. 133(3), pages 1283-1330.
    15. Ehrmann, Michael & Gaballo, Gaetano & Hoffmann, Peter & Strasser, Georg, 2019. "Can more public information raise uncertainty? The international evidence on forward guidance," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 93-112.
    16. Coibion, Olivier & Gorodnichenko, Yuriy & Kumar, Saten & Pedemonte, Mathieu, 2020. "Inflation expectations as a policy tool?," Journal of International Economics, Elsevier, vol. 124(C).
    17. 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.
    18. Jarociński, Marek, 2022. "Central bank information effects and transatlantic spillovers," Journal of International Economics, Elsevier, vol. 139(C).
    19. Gardner, Ben & Scotti, Chiara & Vega, Clara, 2022. "Words speak as loudly as actions: Central bank communication and the response of equity prices to macroeconomic announcements," Journal of Econometrics, Elsevier, vol. 231(2), pages 387-409.
    20. Edward Nelson, 2021. "The Emergence of Forward Guidance As a Monetary Policy Tool," Finance and Economics Discussion Series 2021-033, Board of Governors of the Federal Reserve System (U.S.).
    21. Ricardo Nunes & Ali Ozdagli & Jenny Tang, 2022. "Interest Rate Surprises: A Tale of Two Shocks," Working Papers 2213, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    information effect; forecasts; monetary policy surprise; central bank;
    All these keywords.

    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

    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:fip:fedbwp:95344. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Spozio (email available below). General contact details of provider: https://edirc.repec.org/data/frbbous.html .

    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.