2020
DOI: 10.2139/ssrn.3551950
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The Fed’s Response to Economic News Explains the ‘Fed Information Effect’

Abstract: 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 i… Show more

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Cited by 1 publication
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“…The authors argue that information effects explain why this revision is in the opposite direction to what New Keynesian theory would predict. Yet Bauer and Swanson (2020) argue that the information effects results in Campbell et al (2012) and Nakamura and Steinsson (2018) suffer from omitted variable bias. Bauer and Swanson (2020) argue that once they control for the macroeconomic news released between the date of forecasters' previous forecasts and the date of monetary policy shocks, the information effects disappear.…”
Section: Resultsmentioning
confidence: 99%
“…The authors argue that information effects explain why this revision is in the opposite direction to what New Keynesian theory would predict. Yet Bauer and Swanson (2020) argue that the information effects results in Campbell et al (2012) and Nakamura and Steinsson (2018) suffer from omitted variable bias. Bauer and Swanson (2020) argue that once they control for the macroeconomic news released between the date of forecasters' previous forecasts and the date of monetary policy shocks, the information effects disappear.…”
Section: Resultsmentioning
confidence: 99%