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Does monetary policy generate recessions?

Listed author(s):
  • Christopher A. Sims
  • Tao Zha

The issue of uncovering the effects of monetary policy is far short of resolution. In the identified VAR literature, restrictions have been imposed to identify the effects of unpredictable monetary policy disturbances. We offer critical views on the unreasonable assumptions in the existing work and argue for careful economic argument about identifying assumptions. We display a structural stochastic equilibrium model in which our VAR identification would produce correct results while drawing attention to the serious lack of time series fit in most of the DSGE literature.

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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 98-12.

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Date of creation: 1998
Handle: RePEc:fip:fedawp:98-12
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  1. Romer, Christina D. & Romer, David H., 1994. "Monetary policy matters," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 75-88, August.
  2. Geweke, John, 1988. "Antithetic acceleration of Monte Carlo integration in Bayesian inference," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 73-89.
  3. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
  4. Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers 1085, Cowles Foundation for Research in Economics, Yale University.
  5. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring Monetary Policy," NBER Working Papers 5145, National Bureau of Economic Research, Inc.
  6. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  7. Ball, L. & Mankiw, G.H., 1992. "Relative-Price Change as Aggregate Supply Shocks," Harvard Institute of Economic Research Working Papers 1609, Harvard - Institute of Economic Research.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
  9. Watson, Mark W, 1993. "Measures of Fit for Calibrated Models," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1011-1041, December.
  10. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Working Papers 2966, National Bureau of Economic Research, Inc.
  11. Steven Strongin, 1992. "The identification of monetary policy disturbances: explaining the liquidity puzzle," Working Paper Series, Macroeconomic Issues 92-27, Federal Reserve Bank of Chicago.
  12. Tao Zha, 1995. "Bankruptcy law, capital allocation, and aggregate effects: a dynamic heterogeneous agent model with incomplete markets," FRB Atlanta Working Paper 95-8, Federal Reserve Bank of Atlanta.
  13. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  14. Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc.
  15. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  16. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-1247, December.
  17. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
  18. Jang-Ok Cho, 1993. "Money and Business Cycle with One-Period Nominal Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 638-659, August.
  19. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
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