Discussion Paper Details

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Title: The Transmission of Monetary Policy Shocks

Author(s): Silvia Miranda-Agrippino and Giovanni Ricco

Publication Date: December 2018

Keyword(s): Expectations, External Instruments, Information Rigidity, local projections, monetary policy, Survey Forecasts and VARs

Programme Area(s): Monetary Economics and Fluctuations

Abstract: 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, labour and credit market conditions, as well as of asset prices and agents' expectations.

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Bibliographic Reference

Miranda-Agrippino, S and Ricco, G. 2018. 'The Transmission of Monetary Policy Shocks'. London, Centre for Economic Policy Research.