Monetary Policy Surprises

Identification and Effects of U.S Monetary Policy Before and After the Unconventional Monetary Policy

This research claimed that to evaluate the effects of monetary policy announcements correctly, a measure of the monetary policy surprises is needed. Specifically, as the efficient market hypothesis assumes that financial asset prices respond only to unexpected policy news or actions, this entails the necessity to measure surprise components. For example, if a monetary policy announcement, albeit contains a substantial change, is entirely expected, it will not have any surprise on the market; thus, financial asset prices will not change since the action will already have been priced in. In this regard, I found that the daily window is too long to fulfil this requirement and further, suggested the use of intra-daily data as an alternative, particularly for the analysis in recession times.