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Monetary policy shocks - a nonfundamental look at the data

  • Klaeffling, Matt
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    VAR studies of the effects of monetary policy on output suggest that a contractionary impulse results in a drawn-out, hump-shaped response of output. Standard structural economic models are generally not able to reproduce such a response. In this paper I look at nonfundamental representations that are observationally equivalent to a VAR. I find that the quantitative effect of a monetary policy shock on output might be much smaller and much more short-lived than the VAR studies suggest. I conclude that the apparent discrepancy between the VAR findings and standard structural models may be spurious and that the general tendency to append non-structural, ad hoc features to structural models should be questioned. JEL Classification: C12, E52

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    Paper provided by European Central Bank in its series Working Paper Series with number 0228.

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    Date of creation: May 2003
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    Handle: RePEc:ecb:ecbwps:20030228
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