Testing the Dimensionality of Policy Shocks

• 成果类型: Article
• 署名作者: Li, Jia; Todorov, Viktor; Zhang, Qiushi
• 署名单位: Singapore Management University; Northwestern University; University of International Business & Economics
• 刊物名称: REVIEW OF ECONOMICS AND STATISTICS
• ISSN/ISSBN: 0034-6535
• DOI: 10.1162/rest_a_01139
• 发表日期: 2024-03
• 页码: 470-482
• 关键词: monetary-policy; interest-rates; volatility; rank; identification; tale

摘要

This paper provides a nonparametric test for deciding the dimensionality of a policy shock as manifest in the abnormal change in asset returns' stochastic covariance matrix, following the release of a macroeconomic announcement. We use high-frequency data in local windows before and after the event to estimate the covariance jump matrix and then test its rank. We find a one-factor structure in the covariance jump matrix of the yield curve resulting from the Federal Reserve's monetary policy shocks before the 2007-2009 financial crisis. The dimensionality of policy shocks increased afterwards because of the use of unconventional monetary policy tools.