Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices

29 Pages Posted: 13 Aug 2006 Last revised: 2 Jan 2023

See all articles by Roberto Rigobon

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Brien Sack

Author - Independent

Date Written: August 2006

Abstract

The current literature has provided a number of important insights about the effects of macroeconomic data releases on monetary policy expectations and asset prices. However, one puzzling aspect of that literature is that the estimated responses are quite small. Indeed, these studies typically find that the major economic releases, taken together, account for only a small amount of the variation in asset prices—even those closely tied to near-term policy expectations. In this paper we argue that this apparent detachment arises in part from the difficulties associated with measuring macroeconomic news. We propose two new econometric approaches that allow us to account for the noise in measured data surprises. Using these estimators, we find that asset prices and monetary policy expectations are much more responsive to incoming news than previously believed. Our results also clarify the set of facts that should be captured by any model attempting to understand the interactions between economic data, monetary policy, and asset prices.

Suggested Citation

Rigobon, Roberto and Sack, Brien, Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices (August 2006). NBER Working Paper No. w12420, Available at SSRN: https://ssrn.com/abstract=913307

Roberto Rigobon (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Brien Sack

Author - Independent ( email )

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