DP13396 The Transmission of Monetary Policy Shocks

Author(s):	Silvia Miranda-Agrippino, Giovanni Ricco
Publication Date:	December 2018
Keyword(s):	Expectations, External Instruments, Information Rigidity, local projections, monetary policy, Survey Forecasts, VARs
JEL(s):	C11, C14, E52, G14
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=13396

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.