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What explains the varying monetary response to technology shocks in G-7 countries?

  • Neville Francis
  • Michael T. Owyang
  • Athena T. Theodorou

In a recent paper, Galí, López-Salido, and Vallés (2003) examined the Federal Reserve’s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Fed responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Fed adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, type of monetary policy rule, the responsiveness of the rule to output and inflation fluctuations, and the response to technology shocks.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2004-002.

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Date of creation: 2005
Date of revision:
Publication status: Published in International Journal of Central Banking, December 2005, 1(3), pp. 33-71
Handle: RePEc:fip:fedlwp:2004-002
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