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What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries?

  • Neville R. Francis

    (Department of Economics, University of North Carolina)

  • Michael T. Owyang

    (Research Department, Federal Reserve Bank of St. Louis)

  • Athena T. Theodorou

    (Planning Department, Cyprus Tourism Organization)

In a recent paper, Galí, López-Salido, and Vallées (2003) examined the Federal Reserve’s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Federal Reserve responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Federal Reserve adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, the type of monetary policy rule, the responsiveness of the rule to output and inflation fluctuations, and the response to technology shocks.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 1 (2005)
Issue (Month): 3 (December)
Pages:

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Handle: RePEc:ijc:ijcjou:y:2005:q:4:a:2
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  1. Neville Francis & Michael T. Owyang & Athena T. Theodorou, 2003. "The use of long-run restrictions for the identification of technology shocks," Working Papers 2003-010, Federal Reserve Bank of St. Louis.
  2. Harald Uhlig, 2004. "Do Technology Shocks Lead to a Fall in Total Hours Worked?," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 361-371, 04/05.
  3. Edward Nelson & Kalin Nikolov, 2002. "Monetary policy and stagflation in the UK," Bank of England working papers 155, Bank of England.
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  6. Jordi Galí & David López-Salido & Javier Vallés, 2000. "Technology Shocks and Monetary policy: Assessing the Fed's Performance," Working Papers 0013, Banco de España;Working Papers Homepage.
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  13. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
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