Working Paper: NBER ID: w17034
Authors: Olivier Coibion
Abstract: This paper studies the small estimated effects of monetary policy shocks from standard VAR's versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s.
Keywords: Monetary Policy; Shocks; VAR; Economic Fluctuations
JEL Codes: E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Standard VAR approach (C29) | Peak drop in industrial production (L16) |
| Standard VAR approach (C29) | Increase in unemployment rate (F66) |
| Romer and Romer methodology (C59) | Lower industrial production (L69) |
| Romer and Romer methodology (C59) | Raise unemployment rate (J64) |
| Monetary policy shocks (E39) | Fluctuations in industrial production (E32) |
| Monetary policy shocks (E39) | Fluctuations in unemployment (J64) |
| Monetary policy shocks (E39) | Fluctuations in inflation (E31) |
| Period of non-borrowed reserves targeting (E52) | Estimated effects of monetary policy shocks (E39) |
| Lag structure used in analysis (C22) | Estimated effects of monetary policy shocks (E39) |