Working Paper: NBER ID: w9985
Authors: Ignazio Angeloni; Anil K. Kashyap; Benoit Mojon; Daniele Terlizzese
Abstract: We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it. While the evidence seems to point at differences in consumption responses, rather than investment, as the proximate cause for this fact, the source of the consumption difference remains a puzzle.
Keywords: No keywords provided
JEL Codes: E21; E22; E30; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shift in monetary policy (E63) | Distinct output composition changes in euro area and US (E39) |
| Shift in monetary policy (E63) | Investment as predominant driver of output changes in euro area (E20) |
| Shift in monetary policy (E63) | Consumption shifts as significant in US (E21) |
| Consumption differences (E21) | Output composition puzzle (Y91) |
| Differences in consumer behavior (D19) | Output composition puzzle (Y91) |