Identifying Monetary Policy and Central Bank Information Shocks Using High-frequency Exchange Rates

This work investigates effects of conventional monetary policy and central bank information shocks from monetary policy announcements on the U.S. economy. We identify the surprises caused by changes in target rate and central bank's private information embedded in high frequency exchange rate responses around policy announcements. Our identification strategy is based on economic observations that conventional monetary policy effect is restricted, whereas central bank information effect becomes quantitatively more significant during the zero lower bound (ZLB) period. We investigate the impact of identified monetary policy and central bank information shocks on macro variables using proxy SVAR. Contractionary monetary policy decreases output and price level clearly. A positive information shock which also induces increases in interest rate is perceived by private agents as a positive signal related to a future economic status, and induces an increase in output and easing financial condition.