August 2022 (Revised April 2023)

Temporal Aggregation Bias and Monetary Policy Transmission

Margaret M. Jacobson, Christian Matthes, and Todd B. Walker


Temporal aggregation biases estimates of monetary policy effects. We hypothesize that information mismatches between private agents and the econometrician—the source of temporal aggregation bias—are as important as the more studied mismatch between private agents and the central bank (the “Fed information effect”) in the study of monetary policy transmission. In impulse responses from both local projections and an unobserved components model, we find that the response of daily inflation to high-frequency monetary shocks confirms theoretical predictions. If there is an adverse-signed response such that inflation increases in response to a contractionary monetary shock, it is much less prominent than previously thought and explained by frequency mismatches of shocks and dependent variables.


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