Measuring Riksbank monetary policy: Shocks and macroeconomic transmission

We construct and make available a new monetary policy event study database with high-frequency financial market reactions to Riksbank communications, spanning a period of 20 years. Using these data as instruments, we estimate the macroeconomic effects of monetary policy shocks in Sweden. A temporary, unexpected policy rate tightening induces an immediate and persistent appreciation of the krona exchange rate, as well as a gradual, negative response in output and consumer prices. These results are statistically significant, economically meaningful and robust to a number of variations in our econometric specification. In particular, we consider the possibility that financial market reactions to Riksbank communications may consist not only of pure monetary policy shocks, but could also reflect market participants' updates concerning the central bank's reaction function.