Data and Code for "An Alternative Explanation for the 'Fed Information Effect'"

Principal Investigator(s): View help for Principal Investigator(s) Michael D. Bauer, Universitat Hamburg; Eric T. Swanson, University of California, Irvine

Version: View help for Version V1

Name	File Type	Size	Last Modified
pull_sp500.R	text/x-rsrc	740 bytes	01/19/2023 08:25:AM
run_all.R	text/x-rsrc	946 bytes	01/19/2023 08:25:AM
setup.R	text/x-rsrc	308 bytes	01/19/2023 08:25:AM
table_8.R	text/x-rsrc	8.1 KB	01/19/2023 09:28:AM
tables_6_7.R	text/x-rsrc	6.8 KB	01/19/2023 08:25:AM

Project Description

Summary:

High-frequency changes in interest rates around FOMC announcements are a standard method of measuring monetary policy shocks. However, some recent studies have documented puzzling effects of these shocks on private-sector forecasts of GDP, unemployment, or inflation that are opposite in sign to what standard macroeconomic models would predict. This evidence has been viewed as supportive of a "Fed information effect" channel of monetary policy, whereby an FOMC tightening (easing) communicates that the economy is stronger (weaker) than the public had expected. We show that these empirical results are also consistent with a "Fed response to news" channel, in which incoming, publicly available economic news causes both the Fed to change monetary policy and the private sector to revise its forecasts. We provide substantial new evidence that distinguishes between these two channels and strongly favors the latter; for example, (i) regressions that include the previously omitted public economic news, (ii) a new survey that we conduct of Blue Chip forecasters, and (iii) high-frequency financial market responses to FOMC announcements all suggest that the Fed and private sector are simply responding to the same public news, with relatively little role for a "Fed information effect".

Scope of Project

Subject Terms: Federal Reserve; forecasts; survey; Blue Chip; Delphic forward guidance

JEL Classification:
      E43 Interest Rates: Determination, Term Structure, and Effects
      E52 Monetary Policy
      E58 Central Banks and Their Policies

Geographic Coverage: United States

Related Publications

This study is un-published. See below for other available versions.

Published Versions

V2 [2023-08-22]

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