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Structural changes in the US economy: is there a role for monetary policy?

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  • Fabio Canova

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  • Luca Gambetti

Abstract

This paper investigates the contribution of monetary policy to the changes in output growth and inflation dynamics in the US. We identify a policy shock and a policy rule in a time-varying coefficients VAR using robust sign restrictions. The transmission of policy shocks has been relatively stable. The variance of the policy shock has decreased over time, but policy shocks account for a small fraction of the level and of the variations in inflation and output growth volatility and persistence. We find little evidence of a significant increase in the long run response of the interest rate to inflation. A more aggressive inflation policy in the 1970s would have produced large output growth costs.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 918.

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Date of creation: May 2003
Date of revision: Apr 2008
Handle: RePEc:upf:upfgen:918

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Web page: http://www.econ.upf.edu/

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Keywords: Monetary policy; Inflation persistence; Transmission of shocks; Time varying coefficients structural VARs;

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  21. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
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  24. Canova, Fabio & Gambetti, Luca & Pappa, Evi, 2006. "The Structural Dynamics of US Output and Inflation: What Explains the Changes?," CEPR Discussion Papers 5879, C.E.P.R. Discussion Papers.
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