Unconventional monetary policy announcements and information shocks in the U.S.

Uncertainty and corporate investments in response to the Fed's dual shocks

“…Jarociński and Karadi (2020) offer a refinement of the previously discussed approach to disentangle conventional shocks from informational ones (Adra, 2021; Breitenlechner et al., 2021). The Jarociński and Karadi (2020) approach capitalizes on the use of high‐frequency variables by including in the VAR models the 30‐min changes in the S&P 500 and the 3‐month Fed funds futures around FOMC announcement.…”

“…In this context, monetary contraction, when reflecting the Fed's confidence in a growing economy, can be treated by observers as a new and credible signal of a positive economic outlook (Breitenlechner et al., 2021; Nakamura & Steinsson, 2018). A direct empirical implication is that contractionary monetary shocks can lead to counterintuitive reactions in key economic variables.…”

“…The Fed's growing informational role has direct methodological implications on monetary policy research. In particular, the failure to disentangle the Fed's conventional shocks from the informational component embedded in the Fed's announcement might bias the empirical insights about the economic effects of monetary policy (Adra & Menassa, 2022; Breitenlechner et al., 2021; Jarociński & Karadi, 2020; Miranda‐Agrippino & Ricco, 2021).…”

Heterogeneous Macro and Financial Effects of ECB Asset Purchase Programs

“…These are labeled as an Odyssean shock where the central bank commits to future action, and a Delphic shock, an announcement containing forward guidance such as macroeconomic forecasts or possible future monetary policy (Campbell et al, 2012). Breitenlechner et al (2021) use the aforementioned approach to identify unconventional monetary policy shocks in the US.…”

Monetary policy and information production in the secondary market

“…In turn, interest rate movements that are positively correlated with changes in the S&P 500 suggest that equity investors consider interest rate increases (decreases) as a signal of a positive (negative) economic forecast by the Fed. Rather than reducing growth prospects, unanticipated monetary contraction is treated as a reassuring signal of a robust economic outlook by a credible information producer (Breitenlechner et al, 2021). We rely on the expansive Jarociński and Karadi (2020) dataset that covers 240 FOMC announcements between 1990 and 2016.…”