Banks, Shocks and Monetary Policy

Sammanfattning: Essay 1: This paper studies the effect of monetary policy on the economy, distinguishing the effects of exogenous monetary policy shocks from information shocks that reveal the Federal Reserve's assessment of the economic outlook. To identify these two shocks, I exploit the difference in information content in public announcements by the Fed in its statements (released on decision days) and minutes of FOMC meetings (transcripts of the policy decision, released at a later date). Intuitively, the statements should give more information about monetary policy, while the minutes should contain more news about the economic outlook. I therefore maintain the assumption that the variances of monetary policy and information shocks should be different in statements and minutes. Following a similar approach to that of Rigobon and Sack (2003), I use an identification technique based on the heteroskedasticity of the two shocks. I find that the Fed does know more about macro variables and that monetary policy and information shocks have important but different effects on asset prices. Last, when I separate policy and information shocks, I find stronger effects of monetary policy on macroeconomic variables than when I use standard high-frequency identification.