Permanent and Transitory Monetary Shocks around the World

The effects of monetary policy on output and inflation have been at the center of macroeconomic debate for decades. Uribe (2022) argues, by looking at the US, that a better characterization of these effects can be obtained by splitting monetary policy into transitory and permanent shocks. He finds that transitory monetary contractions reduce inflation and output as in traditional New Keynesian models, whereas long termincreases in the inflation rate increase output in the short run. In this paper we extend the analysis to other countries in the world and show that its conclusions can roughly be extended to this larger set. We also broaden the analysis by lifting the overidentifying assumption of superneutrality. We find that although superneutrality does not strictly hold, deviations from it are very small. An increase in long run inflation can slightly improve output but this effect quickly dwindles as inflation increases and eventually becomes negative. Our results provide new evidence to the standard tenets of monetary policy: monetary policy is unable to move output and has negative side effects if it is allowed to increase beyond the range typically defended by central banks.