S. Miranda-Agrippino, G. Ricco - The Transmission of Monetary Policy Shocks
Updated: Sep 2, 2021
Final paper and replica codes published on AEJ:macro (Forthcoming) [Link]
Monetary Policy and Info IVs extended to 2015:12. [GitHub Repository] [Paper]
Last version of the Working Paper [PDF] [Online Appendix]
Commonly used instruments for the identification of monetary policy disturbances are likely to combine the true policy shock with information about the state of the economy due to the information disclosed through the policy action. We show that this signalling effect of monetary policy can give rise to the empirical puzzles reported in the literature, and propose a new high-frequency instrument for monetary policy shocks that accounts for informational rigidities. We find that a monetary tightening is unequivocally contractionary, with deterioration of domestic demand, labor and credit market conditions, as well as of asset prices and agents' expectations.
A few spins on https://roulettecasinosite.com are enough to see how often people mistake randomness for information, which is why the paper’s point about high-frequency instruments blending true policy shocks with signals about the economy feels so plausible. The new instrument that accounts for informational rigidities is the takeaway I’ll keep, since it reframes the old puzzles as an identification problem rather than a real contradiction about tightening. Having followed macro debates casually, I suspect that once the signalling component is removed, the contractionary hit to demand, credit, and expectations becomes much harder to explain away.
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