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Analyzing the effects of US monetary policy shocks in dollarized countries

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  • Willems, Tim

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 basing conclusions upon the responses of variables in three dollarized countries (Ecuador, El Salvador, and Panama). 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 effects of any mistakenly included non-monetary US shocks, while leaving the effects of true monetary shocks unaffected. Results suggest that prices fall after monetary contractions; output does not show a clear response.

Suggested Citation

  • Willems, Tim, 2013. "Analyzing the effects of US monetary policy shocks in dollarized countries," European Economic Review, Elsevier, vol. 61(C), pages 101-115.
    • Handle: RePEc:eee:eecrev:v:61:y:2013:i:c:p:101-115
    DOI: 10.1016/j.euroecorev.2013.03.005
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    Cited by:

    1. Sangyup Choi & Tim Willems & Seung Yong Yoo, 2022. "Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach," IMF Working Papers 2022/017, International Monetary Fund.
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    3. Markus Eller & Florian Huber & Helene Schuberth, 2016. "Weathering global shocks and macrofinancial vulnerabilities in emerging Europe: Comparing Turkey and Poland," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 46-65.
    4. Feldkircher, Martin & Huber, Florian, 2016. "The international transmission of US shocks—Evidence from Bayesian global vector autoregressions," European Economic Review, Elsevier, vol. 81(C), pages 167-188.

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    More about this item

    Keywords

    Monetary policy effects; Price puzzle; Structural VARs; Identification; Block exogeneity;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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