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

Author/Editor: Barakchian, S. Mahdi | Crowe, Christopher W.
Authorized for Distribution: October 1, 2010
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
 
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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
 
English  
    Published:   October 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010230   Pages:   65
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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