Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices / Roberto Rigobon, Brian Sack.

Format:

Book

Author/Creator:

Rigobon, Roberto.

Contributor:

Sack, Brian.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12420.

NBER working paper series no. w12420

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

The current literature has provided a number of important insights about the effects of macroeconomic data releases on monetary policy expectations and asset prices. However, one puzzling aspect of that literature is that the estimated responses are quite small. Indeed, these studies typically find that the major economic releases, taken together, account for only a small amount of the variation in asset prices--even those closely tied to near-term policy expectations. In this paper we argue that this apparent detachment arises in part from the difficulties associated with measuring macroeconomic news. We propose two new econometric approaches that allow us to account for the noise in measured data surprises. Using these estimators, we find that asset prices and monetary policy expectations are much more responsive to incoming news than previously believed. Our results also clarify the set of facts that should be captured by any model attempting to understand the interactions between economic data, monetary policy, and asset prices.

Notes:

August 2006.

Print version record