Working Paper: CEPR ID: DP5457
Authors: Fabio Canova; Luca Gambetti
Abstract: This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions.
Keywords: Inflation persistence; Monetary policy; Structural VARs; Time varying coefficients; Transmission of shocks
JEL Codes: C53; E47; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stability of the monetary policy rule (E61) | economic outcomes (F61) |
| variance of shocks (C22) | macroeconomic stability (E60) |
| monetary policy shocks (E39) | output responses (C67) |
| monetary policy shocks (E39) | inflation responses (E31) |
| changes in policy (O24) | inflation dynamics (E31) |
| aggressive policy response to inflation (E63) | inflationary pressures (E31) |
| aggressive policy response to inflation (E63) | output costs (D24) |