Marcel-Dagenais Econometrics Seminar 2018-2019
joint with the Département de sciences économiques, Université de Montréal
room C-6149 (U. of Montreal, Lionel-Groulx Pavillon, 3150 Jean-Brillant Street)
Organizer : Marine Carrasco (U. of Montreal)
I identify announcement-specific decompositions of asset price changes into monetary policy shocks based on intraday time-varying volatility, accommodating the time-varying nature of announcements. I compute daily historical decompositions with respect to three monetary policy shocks for the U.S. from 2007-2018. I derive expressions for the asymptotic variance of historical decompositions and apply them to assess the statistical significance of notable announcements. Only a handful of major announcements spark significant shocks. At high frequency, I find evidence that many asset purchase shocks lowered yields on corporate debt. Based on the time-series of shocks, corporate yields again respond strongly to asset purchases, but spreads increase in response to both asset purchases and forward guidance. Turning to the real economy, I find that the asset purchase shock has significant effects on expectations of inflation and GDP growth, particularly among professional forecasters. I compute dynamic responses of inflation and GDP growth; asset purchases have a significant expansionary effect, while Fed Funds shocks and forward guidance do not.