February 2024

Monetary Policy Shocks: Data or Methods?

Connor M. Brennan, Margaret M. Jacobson, Christian Matthes, Todd B. Walker


Different series of high-frequency monetary shocks can have a correlation coefficient as low as 0.5 and the same sign in only two-thirds of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. Methods that exploit the differential responsiveness of short- and long-term asset prices can incorporate additional information. After documenting differences in monetary shocks, we explore their consequence for inference. We find that empirical estimates of monetary policy transmission from local projections and VARs are less affected by shock choice than forecast revision specifications.

Keywords: High-frequency monetary policy shocks, Monetary policy transmission, Empirical monetary economics.

DOI: https://doi.org/10.17016/FEDS.2024.011

PDF: Full Paper

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Last Update: February 28, 2024