An equilibrium model where the Fed has private information about its own policy objectives. The model generates the "Fed information effect", that is, surprise interest rate hikes are sometimes associated with stock market booms and upward revisions of economic forecasts, without assuming that the Fed has superior information about economic fundamentals than the private sector.
Monetary policy induced inflation shocks require a positive risk premium while productivity induced inflation shocks require a negative risk premium. Using FOMC announcement windows as an an event study, we find empirical evidence for a positive monetary policy induced inflation risk premium.
The return on long-term equity less the return on long-term bond over a short FOMC window identifies the long-run impact of monetary policy. We find that 25 bps of conventional monetary policy shock is associated with 100 bps of long-run growth revisions, and 25 bps of Fed information shock is associated with 200 bps of long-run growth revisions.