Working Paper: NBER ID: w19355
Authors: Joshua D. Angrist; Oscar Jord; Guido Kuersteiner
Abstract: We develop a flexible semiparametric time series estimator that is then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes. The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint suggest contractionary policy slows real economic activity. By contrast, the Federal Reserve's ability to stimulate real economic activity through monetary expansion appears to be much more limited. Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period.
Keywords: monetary policy; causal effects; semiparametric estimator; macroeconomic aggregates
JEL Codes: C32; C54; E52; E58; E65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| contractionary monetary policy (E52) | real economic activity (E39) |
| increases in the federal funds rate (E52) | reduced employment (J63) |
| increases in the federal funds rate (E52) | reduced inflation rates (E31) |
| monetary expansion (E50) | real economic activity (E39) |
| contractionary measures (E62) | economic performance (P17) |
| expansionary policy (E62) | economic performance (P17) |
| contractionary monetary policy (E52) | no significant price puzzle (D41) |