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Identifying the Effects of Monetary Policy Shocks in an Open Economy

  • Jacobson, Tor

    ()

    (Research Department, Central Bank of Sweden)

  • Jansson, Per

    (National Institute of Economic Research)

  • Vredin, Anders

    ()

    (Research Department, Central Bank of Sweden)

  • Warne, Anders

    ()

    (European Central Bank)

This paper presents estimates of the effects of monetary policy shocks on the Swedish economy. A theoretical model of an open economy is used to identify a structural VAR model. The empirical results from the identified VAR model are compared with two less structural approaches for identification of monetary policy shocks. The first assumes that shocks can be measured as deviations from a forward looking interest rate rule, estimated using Sveriges Riksbank's (Swedish central bank) own forecasts. The second approach focuses on the effects of "narrative" monetary policy shocks as given by devaluations of the Swedish currency. We find that plausible theoretical restrictions often result in price puzzles. Although conventional results obtain with certain theoretical restrictions imposed on the VAR, another way to achieve this is by using external information about large policy shocks. Thus, we find that the effects of some devaluations are consistent with the conventional wisdom about the effects of monetary policy shock.

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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 134.

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Length: 55 pages
Date of creation: 01 May 2002
Date of revision:
Handle: RePEc:hhs:rbnkwp:0134
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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  1. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
  2. Gredenhoff, Mikael & Jacobson, Tor, 2001. "Bootstrap Testing Linear Restrictions on Cointegrating Vectors," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 63-72, January.
  3. Maurice Obstfeld & Kenneth Rogoff, 2000. "New Directions for Stochastic Open Economy Models," International Finance 0004002, EconWPA.
  4. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1997. "Common trends and hysteresis in Scandinavian unemployment," European Economic Review, Elsevier, vol. 41(9), pages 1781-1816, December.
  5. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  7. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  8. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory 96-05, Federal Reserve Bank of San Francisco.
  9. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation for Research in Economics, Yale University.
  10. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  11. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1994. "Are Real Wages and Unemployment Related?," SSE/EFI Working Paper Series in Economics and Finance 8, Stockholm School of Economics.
  12. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1994. "Common Trends and Hysteresis in Unemployment," SSE/EFI Working Paper Series in Economics and Finance 34, Stockholm School of Economics.
  13. Olivier J. Blanchard & Mark W. Watson, 1984. "Are Business Cycles All Alike?," NBER Working Papers 1392, National Bureau of Economic Research, Inc.
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