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

Abstract

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 future information on the state of the economy that the Federal Reserve communicates in its announcements via an "information channel"? This paper investigates the evolution of the information channel over time. Although the information channel appears to be important historically, we find no empirical evidence of its presence in the recent years once instabilities are accounted for.