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Using Dollarized Countries to Analyze the Effects of US Monetary Policy Shocks

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  • Tim Willems

    (University of Amsterdam)

Abstract

Identifying monetary policy shocks is difficult. Therefore, instead of trying to do this perfectly, this paper exploits a natural setting that reduces the consequences of shock misidentification. It does so by inferring from the responses of variables in dollarized countries. They import US monetary policy just as genuine US states do, but have the advantage that non-monetary US shocks are not imported perfectly. Consequently, this setting reduces the role played by any non-monetary US shocks, while leaving the effects of the true monetary shocks unaffected. Results suggest that prices fall after monetary contractions; output does not show a clear response.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 200.

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Date of creation: 2011
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Handle: RePEc:red:sed011:200

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(1), pages 1-45, February.
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Cited by:
  1. Alessandro Gobbi & Tim Willems, 2011. "Identifying US Monetary Policy Shocks through Sign Restrictions in Dollarized Countries," Tinbergen Institute Discussion Papers, Tinbergen Institute 11-145/2, Tinbergen Institute.
  2. repec:dgr:uvatin:2011145 is not listed on IDEAS

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