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Changes in the Federal Reserve Communication Strategy: A Structural Investigation
Author(s) -
HIROSE YASUO,
KUROZUMI TAKUSHI
Publication year - 2017
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12378
Subject(s) - dynamic stochastic general equilibrium , treasury , yield curve , monetary policy , economics , federal funds , interest rate , taylor rule , bond , yield (engineering) , term (time) , forward guidance , monetary economics , econometrics , estimation , credit channel , finance , central bank , inflation targeting , geography , materials science , physics , archaeology , management , quantum mechanics , metallurgy
This paper structurally investigates the changes in the Fed's communication strategy since the mid‐1990s through the lens of anticipated and unanticipated disturbances to a Taylor rule. The anticipated disturbances are identified using Treasury bond yield data in estimating a dynamic stochastic general equilibrium (DSGE) model with a term structure of interest rates. Our estimation results show that the Fed's decisions were unanticipated for market participants until 1999, but thereafter a larger portion of its future policy actions tended to be communicated in advance. We also find that the relative contribution of the anticipated monetary policy disturbances to macroeconomic fluctuations became larger after 1999. The bond yield data is indispensable to these results, since it contains crucial information on an expected future path of the federal funds rate.