Daily monetary policy shocks and new home sales

The conventional notion of a monetary policy shock as a surprise change in the fed funds rate is misspecified. The primary news for market participants is not what the Fed just did, but is instead new information about the Fed's future intentions. Revisions in these anticipations show up instantaneously in long-term mortgage rates. Home sales do not respond until much later. This paper attributes this delay—and hence much of the hump-shaped response of economic activity to monetary policy—to cross-sectional heterogeneity in search times. This framework allows one in principle to measure policy impacts at the daily frequency.