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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)

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Handle: RePEc:ijc:ijcjou:y:2005:q:4:a:2
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