The Fed and Interest Rates: A High-Frequency Identification
We measure monetary policy shocks as changes in the Fed funds target rate that surprise bond markets in daily data. These shock series avoid the omitted variable, time-varying parameter, and orthogonalization problem of monthly VARs, and do not impose the expectations hypothesis. We find surprisingly large and persistent responses of bond yields to these shocks. 10 year rates rise as much as 8/10 of a percent to a one percent target shock. The usual view that monetary policy only temporarily raises long term rates and influences inflation would lead one to predict a negative long rate response.
|Date of creation:||Mar 2002|
|Date of revision:|
|Publication status:||published as Cochrane, John H. and Monica Piazzesi. "The Fed And Interest Rates - A High-Frequency Identification," American Economic Review, 2002, v92(2,May), 90-91.|
|Note:||AP EFG ME|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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