Title: Monetary shock measurement and stock markets
Authors: Arabinda Basistha - West Virginia University (United States) [presenting]
Richard Startz - University of California Santa Barbara (United States)
Abstract: Narrative approach based measurement of monetary shocks suggest infrequent shocks are crucial for understanding the impact of monetary policy shocks on the economy. However, the narrative approach is also dependent on costly data collection process, researcher judgement and prone to delays due to official document release. We present a stock market based non-linear empirical model to estimate monetary shocks while preserving the key feature of infrequent shocks. Our estimated shocks are large and comparable to previous ones. The estimated impulse responses suggest that a one percent contractionary shock leads to two percent long term decline in industrial production with a peak effect of 3.5 percent decline and more than one percent long term decline in CPI.