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Does the Length of the Period Really Matter for the Identification and the Modelling of Monetary Policy Shocks?


  • Gallès, Clémentine
  • Portier, Franck


In this Paper, we ask whether our empirical and theoretical knowledge about the effect of monetary policy shocks is robust to the choice of the period length. We think that such a question is particularly relevant in the monetary literature, as frictions are often introduced under the form of a one-period lag in agents’ reaction. We first show that it is possible to use more efficiently the available information when identifying monetary policy shocks. Using together quarterly series for GDP and monthly series for monetary aggregates and interest rates, it is possible to identify monetary shocks with the assumption that they do not have any impact on GDP within a month, by restricting ourselves to the identification of third-month-of-a-quarter shocks. With this new method, we obtain very similar estimated IRFs, as compared with the results obtained with quarterly data, although the price puzzle appears to be more pronounced in our estimates. Such a similarity is a new fact that quantitative models need to match. In the second part of the Paper, we propose a model-based explanation for this result, by computing a limited participation model predictions, when the time period is reduced from one quarter to one month, and when the model predictions are time-aggregated at the quarterly frequency. We show that the introduction of adjustment costs to portfolio reallocation into the model is not only improving its fit, but is necessary for obtaining qualitatively realistic predictions, when the length of the period is thought to be the month and not the quarter.

Suggested Citation

  • Gallès, Clémentine & Portier, Franck, 2004. "Does the Length of the Period Really Matter for the Identification and the Modelling of Monetary Policy Shocks?," CEPR Discussion Papers 4409, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4409

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    Cited by:

    1. Starr, Martha A., 2005. "Does money matter in the CIS? Effects of monetary policy on output and prices," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 441-461, September.

    More about this item


    limited participation; monetary policy shocks; time aggregation;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General


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