Monetary Policy Neutrality: Sign Restrictions Go to Monte Carlo
AbstractA new-Keynesian DSGE model in which contractionary monetary policy shocks generate recessions is estimated with U.S. data. It is then used in a Monte Carlo exercise to generate artificial data with which VARs are estimated. VAR monetary policy shocks are identified via sign restrictions. Our VAR impulse responses replicate UhligÕs (2005, Journal of Monetary Economics) evidence on unexpected interest rate hikes having ambiguous effects on output. The mismatch between the true (DSGE-consistent) responses and those produced with sign-restriction VARs is shown to be due to the low relative strength of the signal of the monetary policy shock. We conclude that UhligÕs (2005) finding is not inconsistent with monetary policy non-neutrality.
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Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0151.
Length: 61 pages
Date of creation: Oct 2012
Date of revision:
Monetary policy shocks; VARs; sign restrictions; dynamic stochastic general equilibrium models; monetary neutrality.;
Find related papers by JEL classification:
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
- NEP-DGE-2012-11-17 (Dynamic General Equilibrium)
- NEP-MAC-2012-11-17 (Macroeconomics)
- NEP-MON-2012-11-17 (Monetary Economics)
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