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Measuring the Effects of Monetary Policy in the Euro Area: The Role of Anticipated Policy

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  • Jan Gottschalk
  • Florian Höppner
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    Abstract

    This paper investigates within a SVAR framework the effects of anticipated monetary policy in the euro area. Building on a procedure recently proposed by Cochrane yielding the response of output to an anticipated monetary policy impulse, we show that in the past twenty years anticipated monetary policy had a considerable influence on output. Moreover, we compute the output effects of the systematic monetary policy response to aggregate demand and supply shocks. We find that monetary policy pursues a counter-cyclical policy in response to demand shocks and is pro-cyclical with regard to supply shocks, even though there are considerable lags.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse21_2001.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse21_2001.

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    Length: 32
    Date of creation: Aug 2001
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse21_2001

    Contact details of provider:
    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Vector Autoregression; Systematic Monetary Policy; Historical Decomposition;

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    1. Monticello, Carlo & Tristani, Oreste, 1999. "What does the single monetary policy do? A SVAR benchmark for the European Central Bank," Working Paper Series 0002, European Central Bank.
    2. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    3. John H. Cochrane, 1995. "What do the VARs Mean?: Measuring the Output Effects of Monetary Policy," NBER Working Papers 5154, National Bureau of Economic Research, Inc.
    4. Gerlach, Stefan & Schnabel, Gert, 1999. "The Taylor Rule and Interest Rates in the EMU Area," CEPR Discussion Papers 2271, C.E.P.R. Discussion Papers.
    5. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
    6. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
    7. Sims, Christopher A, 1998. "Comment on Glenn Rudebusch's "Do Measures of Monetary Policy in a VAR Make Sense?"," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 933-41, November.
    8. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
    9. Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
    10. Robert G. King, 2000. "The new IS-LM model : language, logic, and limits," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 45-103.
    11. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
    12. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
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