Monetary Policy Matters: New Evidence Based on a New Shock Measure

Author/Editor: Barakchian, S. Mahdi ; Crowe, Christopher W.
Publication Date: October 01, 2010
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Summary: Conventional VAR and non-VAR methods of identifying the effects of monetary policy shocks on the economy have found a negative output response to monetary tightening using U.S. data over the 1960s-1990s. However, we show that these methods fail to find this contractionary effect when the sample is restricted to the period since the 1980s, apparently due to changes in the policymaking environment that reduce their effectiveness. Identifying policy shocks using Fed Funds futures data, we recover the contractionary effect of monetary tightening on output and find that almost half of output variation over the period appears due to policy shocks.
Series: Working Paper No. 10/230
Subject(s): Central bank policy | Economic models | External shocks | Monetary policy | United States

Author's Keyword(s): Monetary policy | VAR estimation | Fed Funds Futures | FOMC
Publication Date: October 01, 2010
Format: Paper
Stock No: WPIEA2010230 Pages: 65
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