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Are the effects of monetary policy shocks big or small?

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  • Olivier Coibion

    (Department of Economics, College of William and Mary)

Abstract

This paper studies the small estimated effects of monetary policy shocks from standard VAR’s versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s.

Suggested Citation

  • Olivier Coibion, 2011. "Are the effects of monetary policy shocks big or small?," Working Papers 90, Department of Economics, College of William and Mary.
  • Handle: RePEc:cwm:wpaper:90
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    File URL: http://economics.wm.edu/wp/cwm_wp90rev2.pdf
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    More about this item

    Keywords

    Monetary Policy; Shocks; Taylor rule;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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