Working Paper: NBER ID: w12420
Authors: Roberto Rigobon; Brian Sack
Abstract: The current literature has provided a number of important insights about the effects of macroeconomic data releases on monetary policy expectations and asset prices. However, one puzzling aspect of that literature is that the estimated responses are quite small. Indeed, these studies typically find that the major economic releases, taken together, account for only a small amount of the variation in asset prices—even those closely tied to near-term policy expectations. In this paper we argue that this apparent detachment arises in part from the difficulties associated with measuring macroeconomic news. We propose two new econometric approaches that allow us to account for the noise in measured data surprises. Using these estimators, we find that asset prices and monetary policy expectations are much more responsive to incoming news than previously believed. Our results also clarify the set of facts that should be captured by any model attempting to understand the interactions between economic data, monetary policy, and asset prices.
Keywords: macroeconomic announcements; monetary policy; asset prices
JEL Codes: E44; E47; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| measurement errors in macroeconomic data (C82) | downward bias in estimated sensitivity of asset prices (G41) |
| upward surprise in core CPI (E31) | yields (G12) |
| noise in measured data surprises (C22) | downward bias in estimated sensitivity of asset prices (G41) |
| macroeconomic data releases (E01) | asset prices (G19) |
| macroeconomic data releases (E01) | monetary policy expectations (E52) |