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Varying monetary policy regimes: A vector autoregressive investigation

  • Hanson, Michael S.

Recently, two stylized facts about the behavior of the U.S. economy have emerged: first, macroeconomic aggregates appear to be less volatile post-1984 than in the preceding two decades; second, monetary policy appears more responsive to inflationary pressures—and thereby more “stabilizing” — during the Volcker/Greenspan chairmanships relative to earlier regimes. Does a causal relationship exist between these two observations? In particular, has “better” policy by the Federal Reserve Board contributed significantly to the lessened volatility of the U.S. economy? This paper uses a structural vector autoregressive (VAR) specification to address these questions, examining the advantages and limitations of such an approach. In contrast with much of the existing research on these topics, I find that most of the quantitatively significant changes in volatility are attributed to breaks in the non-policy portion of the structural VAR, and not to the identified policy equation.

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Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 58 (2006)
Issue (Month): 5-6 ()
Pages: 407-427

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Handle: RePEc:eee:jebusi:v:58:y:2006:i:5-6:p:407-427
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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