Working Paper: CEPR ID: DP14338
Authors: Oscar Jorda; Sanjay R. Singh; Alan M. Taylor
Abstract: We document that the real effects of monetary shocks last for over a decade. Our approach relies on (1) identification of exogenous and non-systematic monetary shocks using the trilemma of international finance; (2) merged data from two new international historical cross-country databases; and (3) econometric methods robust to long-horizon inconsistent estimates. Notably, the capital stock and total factor productivity (TFP) exhibit greater hysteresis than labor. When we allow for asymmetry, we find these effects with tightening shocks, but not with loosening shocks. When extending the horizon of the responses reported in several recent studies that use alternative monetary shocks, we find similarly persistent real effects, thus supporting our main findings.
Keywords: monetary policy; money neutrality; hysteresis; trilemma; instrumental variables; local projections
JEL Codes: E01; E30; E32; E44; E47; E51; F33; F42; F44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exogenous monetary shocks (E19) | total factor productivity (TFP) (D24) |
| exogenous monetary shocks (E19) | capital stock (E22) |
| exogenous monetary shocks (E19) | output (C67) |
| exogenous monetary shocks (E19) | hysteresis effects in capital and TFP (D29) |
| contractionary monetary policy shock (E49) | slowdown in TFP growth (O49) |
| slowdown in TFP growth (O49) | lower levels of output (E23) |
| slowdown in TFP growth (O49) | lower levels of capital (D29) |
| exogenous monetary shocks (E19) | non-neutral effects on monetary policy (E52) |