additional countries for which S and R* are available (but not IP*). For the other 21 countries, they are insufficient in either S or R*. Since we wish to analyze the responses of exchange rates and interest rates, we keep the former 34 countries in a “Partial” analysis which investigates S and R* responses in models without IP*. We drop the other 21 countries. This selection produces a broader sample of 78 countries, 34 of which we are unable to control for output. See Table A2 for details.

# **2.2 Monetary Policy Shocks and Econometric Methodology**

As our baseline measure of U.S. monetary policy shocks, we use the policy news shock (NS shock) of Nakamura & Steinsson (2018).<sup>8</sup> As highlighted by Nakamura & Steinsson (2018), the NS shock is similar to the “path factor” in Gurkayanak et al. (2005). It contains an information component that alters private-sector beliefs in non-monetary fundamentals, in contrast with the implications of standard New Keynesian model featured by price rigidity. To check robustness, we consider two alternative measures: the “unified measure” of Bu, Rogers & Wu (2021) (BRW shock) and the forward guidance shock (SS-FG shock) of Swanson (2021). The BRW shock is derived from a two-step, partial-least squares estimation using daily interest rate data across a wide spectrum of maturities. It has three appealing features, which together distinguish it from other shock series in the literature. First, by using the full maturity spectrum of interest rates, this series is able to stably bridge periods of conventional and unconventional monetary policy. Second, the shock is largely devoid of the central bank information effect, the notion that monetary policy announcements also reveal information regarding the central bank’s future macroeconomic outlook (Nakamura & Steinsson 2018). Finally, the Bu, Rogers & Wu (2021) monetary policy shock series is largely unpredictable from available information, including Blue Chip forecasts, “big data” measures of economic activity, news releases and consumer sentiment.<sup>9</sup> These considerations make it more plausible to assume that the shock series is exogenous and thus appropriately to be placed first in the ordering of a Sims (1980) style VAR. Finally, we use Swanson (2021)’s forward guidance shock (SS-FG), the extended “path factor” of Gurkayanak et al. (2005) that covers the post-2005 period.

We plot all three shock series in Figure 1. In subsection B.3, we also apply the sign restriction identification in Jarociński & Karadi (2020) to disentangle the pure monetary policy shock (JKMP)

> 8It is the first principal component of unexpected changes over 30-minute windows around FOMC announcements in five underlying variables: the Fed funds rate following the FOMC meeting, the expected Fed funds rate following the next meeting, and three-month eurodollar future rates with two, three, and four tenors. The original NS series spans 1995-2014, and was extended to 2019 by Acosta & Saia (2020). We drop unscheduled FOMC meetings to avoid potential noise and set shocks in no-meeting months to zero as the standard practice.

> 9See Ramey (2016), Miranda-Agrippino (2016), and Bauer & Swanson (2020) for critiques of earlier monetary policy shock series that exhibited predictability.

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