DP14456 Has the Information Channel of Monetary Policy Disappeared? Revisiting the Empirical Evidence

Author(s): Lukas Hoesch, Barbara Rossi, Tatevik Sekhposyan
Publication Date: February 2020
Keyword(s): Forecasting, Information Channel of Monetary Policy, Instabilities, monetary policy
JEL(s): C11, C14, C22, E52, E58
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14456

Does the Federal Reserve have an "information advantage'' in forecasting macroeconomic variables beyond what is known to private sector forecasters? And are market participants reacting only to monetary policy shocks or also to future information on the state of the economy that the Federal Reserve communicates in its announcements via an "information channel''? This paper investigates the evolution of the information channel over time. Although the information channel appears to be important historically, we find no empirical evidence of its presence in the recent years once instabilities are accounted for.