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When did unsystematic monetary policy have an effect on inflation?

  • Mojon, Benoît

An important stylized fact to emerge from the VAR estimates is that exogenous monetary policy shocks (also labelled unsystematic monetary policy) have a delayed, persistent, hump shaped effect on inflation. I argue that this empirical pattern is fragile. In particular it disappears when one corrects for the effects of large shifts (breaks) in average inflation or examines periods without such shifts (such as the 1984-2004 period). An important consequence is that the hump shaped VAR estimated response of inflation is not appropriate to fit stylised models of the response of inflation around a stable steady state inflation level. JEL Classification: E52

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Paper provided by European Central Bank in its series Working Paper Series with number 0559.

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Date of creation: Dec 2005
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Handle: RePEc:ecb:ecbwps:20050559
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  15. Ignazio Angeloni & Anil K. Kashyap & Benoît Mojon & Daniele Terlizzese, 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and United States," Proceedings, Federal Reserve Bank of Cleveland, pages 1265-1317.
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  17. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
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  27. Filippo Altissimo & Valentina Corradi, 2000. "Strong Rules for Detecting the Number of Breaks in a Time Series," Econometric Society World Congress 2000 Contributed Papers 0574, Econometric Society.
  28. Mojon, Benoît & Angeloni, Ignazio & Terlizzese, Daniele & Kashyap, Anil K., 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and U.S," Working Paper Series 0268, European Central Bank.
  29. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
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