Showing papers by "Michael D. Bauer published in 2022"
TL;DR: The authors examined the effect of monetary policy on asset prices and the macroeconomy and found that monetary policy surprise is correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement.
Abstract: High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. We address these concerns in two ways: First, we expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, we explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Our subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
26 citations
TL;DR: In this paper , the authors estimate time-varying perceptions about the Fed's monetary policy rule from cross-sectional survey data and document systematic shifts in the perceived rule that are relevant for monetary policy and asset pricing.
Abstract: We estimate time-varying perceptions about the Fed’s monetary policy rule from crosssectional survey data and document systematic shifts in the perceived rule that are relevant for monetary policy and asset pricing. First, the perceived reaction coefficient to the output gap varies over the monetary policy cycle, with a pattern of quick and surprising rate cuts but gradual and data-dependent tightening. Second, this variation in the perceived rule explains changes in the sensitivity of interest rates to macroeconomic announcements. Third, high-frequency monetary policy surprises lead to updates in beliefs about the policy rule that depend on the state of the economy in the direction that is consistent with rational learning. Fourth, when monetary policy is perceived to be more responsive to real activity, risk premia on long-term Treasury bonds are low, consistent with standard asset pricing logic. Our findings can help explain certain empirical puzzles, such as systematic forecast errors about short-term interest rates and the decoupling of long-term rates during conundrum episodes.
11 citations
TL;DR: In this article , the authors propose a method to solve the problem of homonymity in homonymization: homonymisation of homonyms, i.e., homonyms.
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1 citations
TL;DR: Bauer and Swanson as discussed by the authors used the expanded set of monetary policy surprises compiled by Swanson and Jayawickrema (2022) to measure the dynamic effects of high-frequency monetary policy shocks on the macroeconomy.
Abstract: Bauer and Swanson’s paper is an important contribution to the literature measuring the dynamic effects of monetary policy shocks on the macroeconomy. It shows what can go wrong using apparently exogenous high-frequency monetary policy surprises as instruments for monetary policy shocks, and shows how to correct the faulty estimates and inference by incorporating appropriate control variables. It is also the first paper to use the expanded set of monetary policy surprises compiled by Swanson and Jayawickrema (2022), another important contribution. The culmination of the authors’ work are the monthly impulse responses shown in Figure 8 of the paper. These are the new benchmark impulse response functions for the effect of Federal Reserve monetary policy shocks on the U.S. macroeconomy.