Are the Effects of Monetary Policy Shocks Big or Small?
- (pp. 1-32)
Abstract
This paper studies the small estimated effects of monetary policy shocks from standard VARs versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting, and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s. (JEL E32, E43, E52)Citation
Coibion, Olivier. 2012. "Are the Effects of Monetary Policy Shocks Big or Small?" American Economic Journal: Macroeconomics, 4 (2): 1-32. DOI: 10.1257/mac.4.2.1Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
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