Noisy Monetary Policy Announcements

• Authors: Tatjana Dahlhaus and Luca Gambetti.
• Journal of Applied Econometrics, Vol. 40 , No. 2 ,164-180, March 2025.

We address two main questions. First, do monetary policy announcements contain noise? Second, if yes, what are the effects of policy noise on the economy? The answer to the first question is “yes.” The answer to the second is “small,” except on federal funds rate expectations. In sum, we find that the bulk of fluctuations in the path factor are driven by noise. The results are obtained using dynamic rotations to identify the monetary policy shock in a VAR estimated with US data. Finally, we show that announcements about future tightening are mainly interpreted as Delphic over our sample period.