Has the Information Channel of Monetary Policy Disappeared? Revisiting the Empirical Evidence

Does the Federal Reserve have an “information advantage” in forecasting macroeconomic variables beyond what is known to private sector forecasters? And are market participants reacting only to monetary policy shocks or also to information on the future state of the economy that the Federal Reserve communicates in its announcements via an “information channel”? This paper investigates the evolution of both the information advantage and the information channel over time. Although they appear to be important historically, we find substantially weaker empirical evidence of their presence in recent years once instabilities are accounted for.