Working Paper: CEPR ID: DP14456
Authors: Barbara Rossi; Tatevik Sekhposyan; Lukas Hoesch
Abstract: Does the Federal Reserve have an "information advantage'' in forecasting macroeconomic variables beyond what is known to private sector forecasters? And are market participants reacting only to monetary policy shocks or also to future information on the state of the economy that the Federal Reserve communicates in its announcements via an "information channel''? This paper investigates the evolution of the information channel over time. Although the information channel appears to be important historically, we find no empirical evidence of its presence in the recent years once instabilities are accounted for.
Keywords: Monetary Policy; Information Channel of Monetary Policy; Instabilities; Forecasting
JEL Codes: E52; E58; C11; C14; C22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's monetary policy announcements (E52) | market participants' expectations (D84) |
| Federal Reserve's monetary policy announcements (E52) | expectations about output and inflation (E31) |
| information channel presence (L96) | misleading estimations of economic responses (E71) |
| absence of information advantage (D83) | correct identification of responses to monetary policy shocks (E39) |
| diminished information channel (D83) | less sensitivity of private forecasters' reactions to monetary policy shocks (E39) |