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What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries?

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  • Francis, Neville R
  • Owyang, Michael T
  • Theodorou, Athena T

Abstract

In a recent paper, Galí, López-Salido, and Vallées (2003) examined the Federal Reserve’s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Federal Reserve responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Federal Reserve adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, the type of monetary policy rule, the responsiveness of the rule to output and inflation fluctuations, and the response to technology shocks.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 834.

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Date of creation: 14 Jun 2005
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Publication status: Published in International Journal of Central Banking Number 3.Volume(2005): pp. 33-71
Handle: RePEc:pra:mprapa:834

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Keywords: price setting; nominal rigidity; real rigidity; inflation persistence; survey data;

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References

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  1. Frank Smets & Raf Wouters, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Research 61, National Bank of Belgium.
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  3. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  4. Neville Francis & Valerie A. Ramey, 2004. "The Source of Historical Economic Fluctuations: An Analysis using Long-Run Restrictions," NBER Working Papers 10631, National Bureau of Economic Research, Inc.
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  7. Ramey, Valerie A & Francis, Neville, 2002. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisted," University of California at San Diego, Economics Working Paper Series qt6x80k3nx, Department of Economics, UC San Diego.
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Citations

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Cited by:
  1. Mattesini Fabrizio & Rossi Lorenza, 2008. "Optimal monetary policy in economies with dual labor markets," wp.comunite 0037, Department of Communication, University of Teramo.
  2. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
  3. Galí, Jordi, 2005. "Trends in Hours, Balanced Growth and the Role of Technology in the Business Cycle," CEPR Discussion Papers 4915, C.E.P.R. Discussion Papers.
  4. Lorenza Rossi & Fabrizio Mattesini, 2008. "We analyze, in this paper, a DSGE New Keynesian model with indi- visible labor where firms may belong to two different final goods producing sectors one where wages and employment are determined in co," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0077, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Edward Nelson, 2012. "The correlation between money and output in the United Kingdom: resolution of a puzzle," Finance and Economics Discussion Series 2012-29, Board of Governors of the Federal Reserve System (U.S.).
  6. B. Hofmann & G. Peersman & R. Straub, 2010. "Time Variation in U.S. Wage Dynamics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/691, Ghent University, Faculty of Economics and Business Administration.
  7. Rossi, Lorenza & Mattesini, Fabrizio, 2007. "Optimal Monetary Policy in a Dual Labor Market Economy," MPRA Paper 2468, University Library of Munich, Germany, revised 15 Mar 2007.
  8. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
  9. Fabrizio Mattesini & Lorenza Rossi, 2007. "Productivity shocks and Optimal Monetary Policy in a Unionized Labor Market Economy," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0072, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  10. Jordi Galí, 2004. "Trends in Hours, Balanced Growth, and the Role of Technology in the Business Cycle," Working Papers 187, Barcelona Graduate School of Economics.
  11. Rossi, Lorenza & Mattesini, Fabrizio, 2007. "Productivity Shock and Optimal Monetary Policy in a Unionized Labor Market. Forthcoming: The Manchester School," MPRA Paper 8414, University Library of Munich, Germany, revised 2008.
  12. Neville Francis & Michael T. Owyang & Jennifer E. Roush & Riccardo DiCecio, 2010. "A flexible finite-horizon alternative to long-run restrictions with an application to technology shock," Working Papers 2005-024, Federal Reserve Bank of St. Louis.

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