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Monetary policy shocks: We got news!

Caterina Mendicino
Publication Year 
JEL Code 
C50 - General
E32 - Business Fluctuations; Cycles
E44 - Financial Markets and the Macroeconomy
We augment a medium-scale DSGE model with monetary policy news shocks and …t it to US data. Monetary policy news shocks improve the performance of the model both in terms of marginal data density and in terms of its ability to match the empirical moments of the variables used as observables. We estimate several versions of the model and …nd that the one with news shocks over a two-quarter horizon dominates in terms of overall goodness of …t. We show that, in the estimated model: (1) adding monetary policy news shocks to the model does not lead to identi…cation problems; (2) monetary policy news shocks account for a larger fraction of the unconditional variance of the observables than the standard unanticipated monetary policy shock; (3) these news shocks also help to achieve a better matching of the covariances of consumption growth and the interest rate.
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