|Generate QR code
Open Access
Subscription Access
The effects of monetary shocks on inflation: High-frequency approach
https://doi.org/10.32609/0042-8736-2021-6-47-76
Abstract
Commonly used in monetary VARs identification schemes yield to a highfrequency approach as they tend to raise different empirical puzzles reported in the literature. However, financial markets in some open economies are not sufficiently liquid to provide minute bars data on interest rate financial instruments. This paper fills this gap employing a new series of high-frequency monetary policy surprises with USD/RUB currency futures and spot instruments. We find that a monetary tightening is contractionary without price puzzle and other paradoxes about financial variables. This result is robust for the period 2010—2019 apart from the crisis of 2014—2015 when the free floated ruble was devalued due to the sharp decline in oil prices. We also decompose surprises on monetary policy shocks — changes in the expected interest rate, and an information component — the information simultaneously conveyed by the central bank like an assessment of the economic outlook. We find that the former one significantly affects monetary policy surprises that does not confirm a hypothesis about substantial impact of non-monetary news on the external instrument.
About the Authors
V. A. Bannikova
MGIMO University; Lomonosov Moscow State University
Russian Federation
Russian Federation
Moscow
A. A. Pestova
MGIMO University; CERGE-EI, Charles University
Russian Federation
Russian Federation
Moscow
Prague
References
1. Borzykh O. А. (2016). Bank lending channel in Russia: A TVP-FAVAR approach. Applied Econometrics, Vol. 43, pp. 96—117. (In Russian).
2. Vasilyev D., Busygin V., Busygin S. (2016). Testing and interpreting uncovered interest parity in Russia. Ekonomicheskaya Politika, Vol. 11, No. 4, pp. 35—55. (In Russian). https://doi.org/10.18288/1994-5124-2016-4-02
3. Gurvich E. T., Sokolov V. N., Ulyukaev A. V. (2009). The impact of the exchange rate policy on the interest rates: Uncovered and covered interest rate parity. Journal of the New Economic Association, No. 1—2, pp. 103—126. (In Russian).
4. Mamonov M. E. (2018). Lending channel of monetary policy in Russia: Microeconomic estimates for retail and corporative segments of credit market. Journal of the New Economic Association, No . 1, pp. 112—144. (In Russian). https://doi.org/10.31737/2221-2264-2018-37-1-5
5. Pestova A. (2017). Monetary policy regimes in Russia: Guidelines for further quantitative studies. Voprosy Еkonomiki, No. 4, pp. 38—60. (In Russian). https://doi.org/10.32609/0042-8736-2017-4-38-60
6. Pestova A. A. (2018). On the effects of monetary policy in Russia: The role of the space of spanned shocks and policy regime shifts. Voprosy Еkonomiki, No. 2, pp. 33—55. (In Russian). https://doi.org/10.32609/0042-8736-2018-2-33-55
7. Pestova A. A., Rostova N. A. (2020). Economic effects of monetary policy in Russia: What do large data sets tell us? Voprosy Ekonomiki, No. 4, pp. 31—53. (In Russian). https://doi.org/10.32609/0042-8736-2020-4-31-53
8. Tishin A. (2019). Monetary policy surprises in Russia. Russian Journal of Money and Finance, Vol. 78, No. 4, pp. 48—70. (In Russian). https:// doi.org/10.31477/rjmf.201904.48
9. Caballero J., Fernández A., Park J. (2019). On corporate borrowing, credit spreads and economic activity in emerging economies: An empirical investigation. Journal of International Economics, Vol. 118, рр. 160—178. https://doi.org/10.1016/j.jinteco.2018.11.010
10. Campbell J. R., Evans C. L., Fisher J. D. M., Justiniano A. (2012). Macroeconomic effectsof Federal Reserve forward guidance. Brookings Papers on Economic Activity, No. 1, рp. 1—80. https://doi.org/10.1353/eca.2012.0004
11. Cesa-Bianchi A., Thwaites G., Vicondoa A. (2020). Monetary policy transmission in the United Kingdom: A high frequency identification approach. European Economic Review, Vol. 123, рр. 103—375. https://doi.org/10.1016/j.euroecorev.2020.103375
12. Chaboud A. P., Wright J. H. (2005). Uncovered interest parity: It works, but not for long. Journal of International Economics, Vol. 66, No. 2, рр. 349—362. https:// doi.org/10.1016/j.jinteco.2004.07.004
13. Christiano L. J., Eichenbaum M., Evans C. L. (2005). Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy, Vol. 113, No. 1, рр. 1—45. https://doi.org/10.1086/426038
14. Cieslak A., Schrimpf A. (2019). Non-monetary news in central bank communication. Journal of International Economics, Vol. 118, рр. 293—315. https://doi.org/10.1016/j.jinteco.2019.01.012
15. Coibion O. (2012). Are the effects of monetary policy shocks big or small? American Economic Journal: Macroeconomics, Vol. 4, No. 2, рр. 1—32. https://doi.org/10.1257/mac.4.2.1
16. Cuestas J. C., Filipozzi F., Staehr K. (2015). Do foreign exchange forecasters believe in uncovered interest parity? Economics Letters, Vol. 133, рр. 92—95. https:// doi.org/10.1016/j.econlet.2015.05.029
17. Gertler M., Karadi P. (2015). Monetary policy surprises, credit costs, and economic activity. American Economic Journal: Macroeconomics, Vol. 7, No. 1, рр. 44—76. https://doi.org/10.1257/mac.20130329
18. Gilchrist S., Zakrajšek E. (2012). Credit spreads and business cycle fluctuations. American Economic Review, Vol. 102, No. 4, рр. 1692—1720. https://doi.org/10.1257/aer.102.4.1692
19. Favara G., Gilchrist S., Lewis K. F., Zakrajšek E. (2016). Recession risk and the excess bond premium. FEDS Notes, No. 2016-04-08. Washington, DC: Board of Governors of the Federal Reserve System. https://doi.org/10.17016/2380-7172.1739
20. Feenstra R., Taylor A. (2008). International macroeconomics. New York: Worth.
21. Fujii E., Chinn M. (2001). Fin de siècle real interest parity. Journal of International Financial Markets, Institutions and Money, Vol. 11, No. 3—4, рр. 289—308. https://doi.org/10.1016/S1042-4431(01)00040-3
22. Jarociński M., Karadi P. (2020). Deconstructing monetary policy surprises — The role of information shocks. American Economic Journal: Macroeconomics, Vol. 12, No. 2, рр. 1—43. https://doi.org/10.1257/mac.20180090
23. Kleibergen F., Paap R. (2006). Generalized reduced rank tests using the singular value decomposition. Journal of Еconometrics, Vol. 133, No. 1, рр. 97—126. https:// doi.org/10.1016/j.jeconom.2005.02.011
24. Lothian J. R. (2016). Uncovered interest parity: The long and the short of it. Journal of Empirical Finance, Vol. 36, рр. 1—7. https://doi.org/10.1016/j.jempfin.2015.12.001
25. Mallick S. K., Sousa R. M. (2012). Real effects of monetary policy in large emerging economies. Macroeconomic Dynamics, Vol. 16, No. S2, рр. 190—212. https:// doi.org/10.1017/S1365100511000319
26. Mertens K., Ravn M. O. (2013). The dynamic effects of personal and corporate income tax changes in the United States. American Economic Review, Vol. 103, No. 4, рр. 1212—1247. https://doi.org/10.1257/aer.103.4.1212
27. Miranda-Agrippino S., Ricco G. (2019). The transmission of monetary policy shocks. Paper presented at the DSGE/Macro Worskshop, Frankfurt am Main, October 17.
28. Nakamura E., Steinsson J. (2018). High-frequency identification of monetary non-neutrality: The information effect. Quarterly Journal of Economics, Vol. 133, No. 3, рр. 1283—1330. https://doi.org/10.1093/qje/qjy004
29. Ramey V. A. (2015). Macroeconomic shocks and their propagation. In: J. B. Taylor, H. Uhlig (eds.). Handbook of macroeconomics, Vol. 2. Elsevier, рр. 71—162. https://doi.org/10.1016/bs.hesmac.2016.03.003
30. Shibanov O., Slyusar A. (2019). Interest rate surprises, analyst expectations and stock market returns: Сase of Russia. Unpublished manuscript.
Supplementary files
Review
For citations:
Bannikova V.A., Pestova A.A. The effects of monetary shocks on inflation: High-frequency approach. Voprosy Ekonomiki. 2021;(6):47-76. (In Russ.) https://doi.org/10.32609/0042-8736-2021-6-47-76
Views:
1547
Email this article 
