This paper estimates the effects of monetary policy based on a new, extensive real-time dataset for the United Kingdom. Employing the Romer-Romer identification approach we construct a new measure of monetary policy innovations and find that a 1 percentage point increase in the policy rate reduces output by 0.6 percent and inflation by up to 1 percentage point after 2 to 3 years. Our use of forecast data is shown to be crucial and that their omission generates the well-known price puzzle. Our estimates are more comparable to the wider VAR literature but we also reconcile our findings with the Romer-Romer estimates for the United States.
Cloyne, James, and Patrick Hürtgen.
"The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom."
American Economic Journal: Macroeconomics,
Price Level; Inflation; Deflation
Business Fluctuations; Cycles