The Effect of News Shocks and Monetary Policy
Essays in Honour of Fabio Canova
ISBN: 978-1-80382-636-3, eISBN: 978-1-80382-635-6
Publication date: 16 September 2022
Abstract
A vector autoregression model estimated on US data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news total factor productivity shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
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Acknowledgements
Acknowledgements
We thank Paul Beaudry, Andre Kurmann, Jean-Guillaume Sahuc and seminar participants at the Banque de France and the University of Oxford for extremely valuable comments. Some of this work was completed while John Tsoukalas and Francesco Zanetti were visiting scholars at the Banque de France; they would like to thank the Foundation Banque de France for its support. Financial support from the Leverhulme Trust Research Project Grant RPG-2014-255 is gratefully acknowledged.
Citation
Gambetti, L., Görtz, C., Korobilis, D., Tsoukalas, J.D. and Zanetti, F. (2022), "The Effect of News Shocks and Monetary Policy", Dolado, J.J., Gambetti, L. and Matthes, C. (Ed.) Essays in Honour of Fabio Canova (Advances in Econometrics, Vol. 44A), Emerald Publishing Limited, Leeds, pp. 139-164. https://doi.org/10.1108/S0731-90532022000044A005
Publisher
:Emerald Publishing Limited
Copyright © 2022 Luca Gambetti, Christoph Görtz, Dimitris Korobilis, John D. Tsoukalas and Francesco Zanetti