Assist. Prof. Hassan Afrouzi, Ph.D.

Monetary Policy and Business Investment

During Hassan Afrouzi’s visit, he will be working on a joint project with Peter Zorn on the effect of monetary policy on business investment. The conventional view of monetary policy prescribes that an expansionary shock should increase business investment through reducing the cost of investment. In their research, they document that the opposite effect prevails in the data: for publicly-traded firms, they estimate a decline in capital stock following an expansionary high-frequency identified monetary policy shock.

They interpret this contractionary response as evidence for the presence of information effects. High-frequency shocks are identified as surprise changes in the federal funds rate relative to market expectations. If the central bank has superior information about the economy relative to the market, these surprises contain both pure and exogenous monetary policy shocks as well as a component reflecting informational advantage. Therefore, to better understand the role of each component, one needs to control for the new information that surprises markets. Using two different and independent approaches to purge information effects in high-frequency identified monetary policy shocks, their second main contribution is to show that capital expenditures of firms are largely insensitive to purified monetary policy shocks. Instead, information shocks emerge as the main driver of investment spending. They are in the process of building a model to formally interpret these results.

Hassan Afrouzi’s research areas are Macroeconomics, Monetary Economics, Behavioral & Experimental. He is Assistant Professor of Economics at the Department of Economics of Columbia University. His PhD is from the University of Texas at Austin.