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Does Monetary Policy Generate Recessions?

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  • SIMS, CHRISTOPHER A.
  • ZHA, TAO

Abstract

We consider two kinds of answers to the title question: Do random shifts in monetary policy account for historical recessions, and would changes in the systematic component of monetary policy have allowed reductions in inflation or output variance without substantial costs. The answer to both questions is no. We use weak identifying assumptions and include extensive discussion of these assumptions, including a completely specified dynamic stochastic equilibrium model in which our identifying assumptions can be shown to be approximately satisfied.

Suggested Citation

  • Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(2), pages 231-272, April.
  • Handle: RePEc:cup:macdyn:v:10:y:2006:i:02:p:231-272_05
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