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Peter Karadi, Ph.D.

European Central Bank

Authors: Peter Karadi and Marek Jarocinski

Abstract: The paper separately identifies three components of high-frequency surprises around Fed announcements: a monetary policy shock, a central bank information shock (CBI, Jarocinski-Karadi,2020), a Fed response to news shock (FRN, Bauer-Swanson(2023). It achieves identification by utilizing both the high frequency co-movement of interest rate and stock price surprises and the predictability of surprises by preceding public news. It estimates the dynamic impacts of the shocks in a monthly Bayesian VAR and confirms the robust presence of central bank information effects. It finds that the role of the FRN shock is marginal in the baseline sample with a broad array of Fed announcements. The monetary policy shock purged from the impact of both CBI and FRN shocks generates impulse responses in line with theoretical predictions.