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Multiple monetary policy shocks from daily data: A heteroskedasticity IV approach

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  • Marc Burri
  • Daniel Kaufmann

Abstract

We extend the heteroskedasticity IV estimator of Rigobon and Sack (2004) from one to multiple monetary policy shocks by imposing recursive zero restrictions on the impact matrix. Unlike high-frequency identification, the approach requires neither intraday tick data nor precise announcement timestamps, making it applicable to countries or historical periods where such data are unavailable. Applied to US FOMC announcements, we find causal effects similar to those of high-frequency identification. The heteroskedasticity-based instrument passes weak-instrument tests for the target shock, whereas high-frequency surprises fail. For the path shock, we also find strong heteroskedasticity-based instruments in key specifications, and we show that the underlying shocks are similar to those based on high-frequency identification.

Suggested Citation

  • Marc Burri & Daniel Kaufmann, 2026. "Multiple monetary policy shocks from daily data: A heteroskedasticity IV approach," IRENE Working Papers 26-06, IRENE Institute of Economic Research.
    • Handle: RePEc:irn:wpaper:26-06
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    References listed on IDEAS

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    1. Daniel J. Lewis, 2022. "Robust Inference in Models Identified via Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 104(3), pages 510-524, May.
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    3. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
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    5. Emi Nakamura & Jón Steinsson, 2018. "High-Frequency Identification of Monetary Non-Neutrality: The Information Effect," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1283-1330.
    6. Jeremy Piger & Thomas Stockwell, 2025. "Differences From Differencing: Should Local Projections With Observed Shocks Be Estimated in Levels or Differences?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(7), pages 759-787, November.
    7. Michael Bauer & Mikhail Chernov, 2024. "Interest Rate Skewness and Biased Beliefs," Journal of Finance, American Finance Association, vol. 79(1), pages 173-217, February.
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    Keywords

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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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