Monetary policy and information shocks in a block-recursive SVAR

This study introduces a new estimator that combines block-recursive restrictions with higher-order moment conditions and non-Gaussian shocks. The proposed estimator improves the accuracy of the estimation, simplifies labeling, and allows for relaxing the independence and non-Gaussianity assumptions in comparison to a purely data-driven approach. We use the approach to disentangle the interaction of stock prices and interest rates into monetary policy and stock market information shocks. We find that traditional monetary policy shocks move interest rates and stock prices in opposite directions, whereas information shocks move both variables in the same direction. Moreover, we uti-lize high-frequency data from FOMC announcements to derive a proxy for central bank information shocks and show that these shocks are statistically relevant for the low-frequency stock market information shock.& COPY; 2023 Elsevier Ltd. All rights reserved.