Adam Smith Business School

Dr Marek Jarociński, European Central Bank

"Disentangling Monetary Policy, Central Bank Information, and Fed Response to News Shocks" (Joint Work with Peter Karadi (ECB))
Friday, 28 March 2025. 15:00-16:30
Room 386AB, Adam Smith Business School Building

Abstract

This paper identifies three distinct components of high-frequency surprises around FOMC and non-FOMC Fed announcements: (a) a monetary policy shock, (b) a central bank information (CBI) shock, reflecting differences between market and Fed assessments of the economy, and (c) a Fed response to news (FRN) shock, reflecting market misperceptions of the Fed’s policy rule. Identification is achieved by leveraging (i) the high-frequency co-movement of interest rate and stock price surprises, (ii) the predictability of surprises based on public news, and (iii) heteroskedasticity between FOMC and non-FOMC announcements. The paper estimates the dynamic effects of these shocks using daily local projections and a monthly Bayesian VAR. Results confirm the robust presence of the CBI shock. The FRN shock plays a role in daily data but has little impact at the monthly level. The monetary policy shock, purified of CBI and FRN influences, generates impulse responses in line with theoretical predictions.

Bio

Marek Jarocinski is a Principal Economist in the Directorate General Research of the European Central Bank. His research in macroeconomics and econometrics has been published among others in the American Economic Journal: Macroeconomics, Journal of Monetary Economics, Journal of Econometrics, The Review of Economics and Statistics and Journal of International Economics. He holds a PhD in Economics from Universitat Pompeu Fabra, Barcelona.

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First published: 5 March 2025