The effects of monetary shocks on inflation: High-frequency approach

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.