Economics Research Seminar – Dr Francesco Fusari

Title: Skewness and Monetary Policy Decisions

Date: 5 February 2025

Time: 13:30 – 14:30

Venue: NUBS.4.23

If you would like to attend, please register using the following link:

Skewness and Monetary Policy Decisions

Speaker:  Dr Francesco Fusari

Francesco Fusari is a Lecturer in Macroeconomics at Newcastle University Business School.

Abstract:

This paper studies the relationship between monetary policy decisions taken by the Federal Open Market Committee (FOMC) and higher moments of expected economic outcomes. First, I employ quantile factor models to characterize the conditional distribution of central bank economic projections and construct indicators of uncertainty and skewness. Second, I find that the skewness of expected output growth and inflation rate is a crucial predictor of the changes in the intended federal funds rate deliberated by the FOMC. This empirical evidence is found to be reconcilable with central bank’s optimal behavior under non-linear weighting of probability. My findings suggest that considering central moments only is not enough to fully capture the systematic component of monetary policy and lead therefore to important implications for the identification of monetary policy shocks. Specifically, I find that conditioning on higher moments allows to identify monetary policy shocks exhibiting lower predictability and that generate theoretically consistent effects on the economy.