The effect of news shocks and monetary policy

Luca Gambetti, Christoph Gortz, Dimitris Korobilis, John D. Tsoukalas, Francesco Zanetti

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A vector autoregression model estimated on US data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news total factor productivity shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
Original languageEnglish
Pages (from-to)138-164
Number of pages27
JournalAdvances in Econometrics
Publication statusPublished - 16 Sept 2022

Bibliographical note

Citation (book series):
Gambetti, L., Görtz, C., Korobilis, D., Tsoukalas, J.D. and Zanetti, F. (2022), "The Effect of News Shocks and Monetary Policy", Dolado, J.J., Gambetti, L. and Matthes, C. (Ed.) Essays in Honour of Fabio Canova (Advances in Econometrics, Vol. 44A), Emerald Publishing Limited, Bingley, pp. 139-164.


  • news shocks
  • business cycles
  • vector autoregression models
  • monetary policy
  • Great Moderation
  • total factor productivity news
  • E20
  • E32
  • E43
  • E52


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