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The Term Structure of Monetary Policy News

Author

Listed:
  • Jonathan J Adams

    (Department of Economics, University of Florida)

  • Philip Barrett

    (International Monetary Fund)

Abstract

Empirical monetary policy shocks (EMPS) contain information about monetary policy both today and in the future. We define the term structure of monetary policy news as the marginal impact of an EMPS on the policy residual at each horizon. Policy news at different horizons has different effects, so knowing the term structure is necessary in order to use an EMPS to evaluate theory. We develop an IV method to estimate this term structure. We find that most EMPS in the literature convey more information about policy in future than in the present, but there is substantial heterogeneity. We use the estimated term structures to construct synthetic forward guidance and surprise shocks, and estimate their macroeconomic effects. Surprise interest rate hikes exhibit an "output puzzle", but forward guidance about future rate increases is deeply contractionary.

Suggested Citation

  • Jonathan J Adams & Philip Barrett, 2025. "The Term Structure of Monetary Policy News," Working Papers 001017, University of Florida, Department of Economics.
    • Handle: RePEc:ufl:wpaper:001017
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    References listed on IDEAS

    as
    1. Bu, Chunya & Rogers, John & Wu, Wenbin, 2021. "A unified measure of Fed monetary policy shocks," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 331-349.
    2. Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.
    3. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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