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Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited

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  • Joshua D. Angrist
  • Òscar Jordà
  • Guido Kuersteiner

Abstract

We develop a flexible semiparametric time series estimator that is then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes. The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint suggest contractionary policy slows real economic activity. By contrast, the Federal Reserve's ability to stimulate real economic activity through monetary expansion appears to be much more limited. Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19355.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19355

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  1. Morten O. Ravn & Martin Sola, 2004. "Asymmetric effects of monetary policy in the United States," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Sep, pages 41-60.
  2. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 425-436, March.
  3. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2006. "Market-based measures of monetary policy expectations," Working Paper Series, Federal Reserve Bank of San Francisco 2006-04, Federal Reserve Bank of San Francisco.
  4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  5. Monika Piazzesi & Eric Swanson, 2004. "Futures Prices as Risk-adjusted Forecasts of Monetary Policy," NBER Working Papers 10547, National Bureau of Economic Research, Inc.
  6. Thapar, Aditi, 2008. "Using private forecasts to estimate the effects of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(4), pages 806-824, May.
  7. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  8. Chiara Scotti, 2011. "A Bivariate Model of Federal Reserve and ECB Main Policy Rates," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 37-78, September.
  9. Faust, Jon & Swanson, Eric T. & Wright, Jonathan H., 2004. "Identifying VARS based on high frequency futures data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(6), pages 1107-1131, September.
  10. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 232-237, May.
  11. James D. Hamilton, 2007. "Daily Changes in Fed Funds Futures Prices," NBER Working Papers 13112, National Bureau of Economic Research, Inc.
  12. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  13. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(4), pages 1261-82, November.
  14. Monika Piazzesi, 2005. "Bond Yields and the Federal Reserve," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(2), pages 311-344, April.
  15. Joshua D. Angrist & Guido M. Kuersteiner, 2004. "Semiparametric Causality Tests Using the Policy Propensity Score," NBER Working Papers 10975, National Bureau of Economic Research, Inc.
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Cited by:
  1. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
  2. M. Hashem Pesaran & Ron P. Smith, 2012. "Counterfactual Analysis in Macroeconometrics: An Empirical Investigation into the Effects of Quantitative Easing," CESifo Working Paper Series 3879, CESifo Group Munich.
  3. Forbes, Kristin & Fratzscher, Marcel & Straub, Roland, 2014. "Capital Controls and Macroprudential Measures: What Are They Good For?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9798, C.E.P.R. Discussion Papers.

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