The AEA is providing open access to all journal content on the AEA website through August 2020 to overcome any difficulties some may have accessing library subscriptions during these challenging times.
The AEA is providing open access to all journal content on the AEA website through August 2020 to overcome any difficulties some may have accessing library subscriptions during these challenging times.
Commonly used instruments for the identification of monetary policy disturbances
are likely to combine the true policy shock with information about the state
of the economy due to the information disclosed through the policy action. We
show that this signalling effect of monetary policy can give rise to the empirical
puzzles reported in the literature, and propose a new high-frequency instrument
for monetary policy shocks that accounts for informational rigidities. We find
that a monetary tightening is unequivocally contractionary, with deterioration of
domestic demand, labor and credit market conditions, as well as of asset prices
and agents' expectations.
