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Monetary Policy Inertia or Persistent Shocks?

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Author Info
Carrillo, J.
Fève, P.
Matheron, J.

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Abstract

In this paper, we propose a simple econometric framework to disentangle the respective roles of monetary policy inertia and persistent shocks in interest rate rules. The procedure exploits the cross-equation restrictions provided by a DSGE model which is confronted to a monetary SVAR. We show that, provided enough informative variables are included in the formal test, the data favour a monetary policy representation with low inertia and highly serially correlated monetary shocks. To the contrary, when the procedure is based solely on the dynamic behavior of the nominal interest rate, no clear-cut conclusion can be reached as to the correct representation of monetary policy.

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Publisher Info
Paper provided by Banque de France in its series Documents de Travail with number 150.

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Length: 63 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bfr:banfra:150

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Related research
Keywords: Taylor rule ; Monetary policy identification ; Policy Inertia.;

Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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