Title: Using high-frequency exchange rate to identify direct and information effects of monetary policy shocks
Authors: Boreum Kwak - Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research (Germany) [presenting]
Alexander Kriwoluzky - German Institute for Economic Research (Germany)
Oliver Holtemoeller - Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research (Germany)
Abstract: The impact of central bank announcements on the macroeconomy in the US is studied. Monetary policy announcements contain information about current and future interest rate policies and the economic outlook. We disentangle the surprises caused by direct changes in interest rate and information in policy announcements using changes in volatility of two shocks in high-frequency exchange rate. The information shock in high-frequency surprises becomes quantitatively significant after the recent financial crisis. We investigate the impact of identified direct and information shocks on macro variables using proxy SVAR: a positive information shock is perceived by private agents as a positive signal related to a future economic status, and induces an increase in output and easing financial conditions. Finally, we observe that a monetary policy uncertainty responds to the direct policy shock immediately, but to the information shock slowly with fluctuations.