The monetary transmission mechanism: Evidence from the G-7 countries
AbstractIn this paper we compare the effects of monetary policy on output and prices in the G-7 countries using a parsimonious macroeconometric model comprising, output, prices and a short-term interest rate. We identify monetary policy shocks by assuming that they do not affect real output instantaneously (within the quarter) or in the long run and implement these restrictions using a sequential instrumental variables technique. We show that the so-called pricepuzzle which has been noticed in the large VAR-literature in which only shortrun restrictions are used, disappears. This suggests that the puzzle is due to the fact that the use of only short-run identifying restrictions does not properly discriminate between contractionary aggregate supply shocks and monetary policy shocks. We conclude that the effects of a standardised monetary policy action are very similar across countries.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 26.
Length: 49 pages
Date of creation: Apr 1995
Date of revision:
Other versions of this item:
- Gerlach, Stefan & Smets, Frank, 1995. "The Monetary Transmission Mechanism: Evidence from the G-7 Countries," CEPR Discussion Papers 1219, C.E.P.R. Discussion Papers.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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