The effect of news shocks and monetary policy

Gambetti, L., Görtz, C., Korobilis, D. , Tsoukalas, J. D. and Zanetti, F. (2022) The effect of news shocks and monetary policy. In: Dolado, J. J., Gambetti, L. and Matthes, C. (eds.) Essays in Honour of Fabio Canova (Advances in Econometrics, Vol. 44A). Emerald, pp. 139-164. ISBN 9781803826363 (doi: 10.1108/S0731-90532022000044A005)

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A vector autoregression model estimated on US data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news total factor productivity shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.

Item Type:Book Sections
Glasgow Author(s) Enlighten ID:Tsoukalas, Professor John and Korompilis Magkas, Professor Dimitris and Gortz, Dr Christoph
Authors: Gambetti, L., Görtz, C., Korobilis, D., Tsoukalas, J. D., and Zanetti, F.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Advances in Econometrics
Published Online:16 September 2022
Copyright Holders:Copyright © 2022 Luca Gambetti, Christoph Görtz, Dimitris Korobilis, John D. Tsoukalas and Francesco Zanetti
Publisher Policy:Reproduced in accordance with the publisher copyright policy
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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
190803Where is the news in business cycles? A new approach with novel methodologies.John TsoukalasLeverhulme Trust (LEVERHUL)RPG-2014-255BS - Economics