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Interest Rate Surprises: A Tale of Two Shocks

Author

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  • Ricardo Nunes

    (University of Surrey, CIMS, and CfM
    Centre for International Macroeconomic Studies (CIMS)
    Centre for Macroeconomics (CFM))

  • Ali Ozdagli

    (Federal Reserve Bank of Dallas)

  • Jenny Tang

    (Federal Reserve Bank of Boston)

Abstract

Interest rate surprises around FOMC announcements contain both pure policy shocks and interest rate movements driven by central bank information about the economy. By analyzing interest rate changes on days of macroeconomic data releases, the impact of the central bank’s information shocks can be identified and separated from the pure policy shocks. Results show that there is a significant central bank information component in the widely used policy rate surprise measure. Removing this component reveals that the contractionary effects of a positive pure policy shock are more pronounced relative to those estimated using the entire policy rate surprise. A positive information shock, on the other hand, is expansionary.

Suggested Citation

  • Ricardo Nunes & Ali Ozdagli & Jenny Tang, 2023. "Interest Rate Surprises: A Tale of Two Shocks," Discussion Papers 2320, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2320
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    3. Felipe Beltrán, 2023. "Global monetary policy surprises and their transmission to emerging market economies: an external VAR analysis," Working Papers Central Bank of Chile 975, Central Bank of Chile.

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    More about this item

    Keywords

    Monetary policy; central bank information; high frequency identification; proxy structural VAR; external instruments;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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