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Monetary policy shocks - a nonfundamental look at the data

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  • Klaeffling, Matt
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    Abstract

    VAR studies of the effects of monetary policy on output suggest that a contractionary impulse results in a drawn-out, hump-shaped response of output. Standard structural economic models are generally not able to reproduce such a response. In this paper I look at nonfundamental representations that are observationally equivalent to a VAR. I find that the quantitative effect of a monetary policy shock on output might be much smaller and much more short-lived than the VAR studies suggest. I conclude that the apparent discrepancy between the VAR findings and standard structural models may be spurious and that the general tendency to append non-structural, ad hoc features to structural models should be questioned. JEL Classification: C12, E52

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    Paper provided by European Central Bank in its series Working Paper Series with number 0228.

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    Date of creation: May 2003
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    Handle: RePEc:ecb:ecbwps:20030228

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    Cited by:
    1. Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2007. "A Review of Nonfundamentalness and Identification in Structural VAR Models," LEM Papers Series 2007/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Klaeffling, Matt, 2003. "Macroeconomic modelling of monetary policy," Working Paper Series 0257, European Central Bank.
    3. Ascari, Guido & Rankin, Neil, 2007. "Perpetual youth and endogenous labor supply: A problem and a possible solution," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 708-723, December.
    4. Richard Mash, 2006. "Optimising Microfoundations for Inflation Persistence," Computing in Economics and Finance 2006 457, Society for Computational Economics.

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