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Only Paul Could Go To Changchun

Monetary Policy Uncertainty

11/12/2017

 
Here.

Uses text analysis.

We construct new measures of uncertainty about Federal Reserve policy actions and their consequences — monetary policy uncertainty (MPU) indexes. We show that, under a variety of VAR identification schemes, positive shocks to uncertainty about monetary policy robustly raise credit spreads and reduce output. The effects are of comparable magnitude to those of conventional monetary policy shocks. We evaluate the usefulness of our MPU indexes, and examine the influence of Fed communication. Our analysis suggests that policy rate normalization that is accompanied by reduced uncertainty can help neutralize the contractionary effects of the rate increases themselves.

From:

Lucas Husted
Columbia University

John Rogers
Bo Sun 
Federal Reserve Board

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