Monetary policy surprises and exchange rate behavior

Gürkaynak, Refet S.; Kara, Ali; Kısacıkoğlu, Burçin; Lee, Sang Seok

doi:10.1016/j.jinteco.2021.103443

Cited by 30 publications

(14 citation statements)

References 26 publications

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“…In the TVP-SVAR-X model, the effects of the surprises on the exchange rate is hard to interpret, with appreciations often being recorded. Gürkaynak et al (2020) document puzzling responses of exchange rates to monetary policy surprises in certain cases for the Fed and the euro area, though their results are consistent with theory when considered on average over the sample. The time-varying impulse response functions of this study may be picking up some of these counter-intuitive exchange rate responses.…”

Section: The Time-varying Parameter Modelsupporting

confidence: 50%

The Economic Impact of Yield Curve Compression: Evidence from Euro Area Forward Guidance and Unconventional Monetary Policy

Goodhead

2022

SSRN Journal

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Section: The Time-varying Parameter Modelsupporting

confidence: 50%

The Economic Impact of Yield Curve Compression: Evidence from Euro Area Forward Guidance and Unconventional Monetary Policy

Goodhead

2022

SSRN Journal

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“…The estimated coefficients in columns ( 3)-( 4) are both negative and highly statistically significant, consistent with the predictions of standard models. Comparing columns ( 3) and ( 4), the point estimate in column ( 3) is slightly smaller than in column ( 4), which could be consistent with an information effect along the lines discussed in Gürkaynak et al (2021), but the difference is small and far from being statistically significant. Thus, the foreign exchange market does not respond to FOMC announcements in a way that suggests a strong information effect, either.…”

Section: Evidence From Stock Market and Exchange Rate Responsesmentioning

confidence: 52%

An Alternative Explanation for the “Fed Information Effect”

Bauer¹,

Swanson²

2020

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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) high-frequency stock market responses to Fed announcements, (ii) a new survey that we conduct of individual Blue Chip forecasters, and (iii) regressions that include the previously omitted public macroeconomic data releases all indicate that the Fed and Blue Chip forecasters are simply responding to the same public news, and that there is little if any role for a "Fed information effect".

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“…The Fed belief surprises are also related to the Fed information effect emphasized in the recent literature (see, e.g., Romer and Romer (2000); Campbell et al (2012); Melosi (2017); Nakamura and Steinsson (2018a); Andrade et al (2019); Gürkaynak et al (2021);Hillenbrand (2021); Rungcharoenkitkul and Winkler (2022))-the idea that the Fed's policy announcements might signal information about fundamentals. We highlight a different effect.…”

Section: Introductionmentioning

confidence: 90%