Monetary Policy Communication Shocks and the Macroeconomy

Using federal funds futures data, we show the importance of suprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. We distinguish between monetary policy action and "communication shocks" (suprise announcements about future policy moves) by decomposing futures price movements across contract maturities. Our results indicate that it is mainly communication shocks- as opposed to actual rate-change suprises- that affect production in the ways traditionally associated with monetary policy shocks between 1994 and 2008. Covering the zero-lower bound period using Eurodollar futures, we find strong effects of long-horizon communication on inflation.