Monetary Policy and Information Effects: Romer and Romer (2004) and Beige and Green Books

The following is from a short essay responding to the prompt “Can the Romer and Romer (2004) monetary policy shocks still be faulty of including information effects?”

Romer and Romer’s (RR) monetary policy shocks may indeed still be faulty of including information effects. RR rely exclusively on decision making instances informed by projections from the Green Book. Under the more conservative policy making period RR were analyzing, the Green Book projections may very well have been a primary information, but they are not the only FED publication whose work can be used to anticipate future economic conditions. For example, today, the Beige Book is more in vogue than usual following the SVB collapse because it includes insights from regional and community banks, a major concern of policy makers at the moment. This trend highlights two other information effect concerns. First, the information that policy makers focus on or that might inform a future understanding of economic conditions among agents who impact economic data will change with economic conditions. Second, policy makers themselves are individuals, who will seek, consume, and weigh information differently than one another. A recent example is the Chicago Governor’s, Austan Goolsbee, speech wherein he explained his current interest and cautionary stance on interest rate rises is due to incoming data on credit and its implication for future economic conditions (Bloomberg, 2023). Goolsbee’s decision making differs from other FED policy makers who might favor continuing rate rises based on Green Book information proving that their information interpretation is different[1] and that information impacting our sought by FED officials about future economic conditions is not limited to Green Book information. Similar economic actors (firms and households) should not be expected to be responding to Green Book information but influencing the economy based on a number of information sources.

[1][1] Generally, the idea that FED officials are individual’s feels quite overlooked in economic analysis. Future analysis of MPS impacts and information effects might benefits from analyzing the decision making of individuals officials (i.e. though speeches) in a process similar to Hudson’s “Actor-Specific Theory” approach in International Relations (2005, Foreign Policy Analysis pp. 1-30)