IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Analysis of the Monetary Transmission Mechanism: Methodological Issues

  • Bennett T. McCallum

This paper argues that, in studying the monetary policy transmission process, more emphasis should be given to the systematic portion of policy behavior and correspondingly less to random shocks basically because shocks account for a very small fraction of policy-instrument variability. Analysis of the effects of the systematic part of policy requires structural modelling, rather than VAR procedures, because the latter do not give rise to behavioral relationships that can plausibly be regarded as policy-invariant. By use of an illustrative open- economy structural model based on optimizing analysis, and considering variants, the paper characterizes the effects of policy parameter settings by means of impulse response functions and root-mean-square statistics for target errors. Different models give different answers to questions about the effects of systematic policy, so procedures for scrutinizing model specification are essential. In this regard, it is argued that vector autocorrelation functions, augmented by variance statistics for each of a model's variables, seem more promising than impulse response functions because the latter require shock identification, which is inherently a difficult process.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w7395.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7395.

as
in new window

Length:
Date of creation: Oct 1999
Date of revision:
Publication status: published as With Marvin S. Goodfriend, published as "Theoretical Analysis of the Demandfor Money", FRBR, Vol. 74, no. 1 (1988): 16-24.
Handle: RePEc:nbr:nberwo:7395
Note: ME
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 250-254, February.
  2. Unknown, 1999. "Discussion," Ecological Economics, Elsevier, vol. 31(1), pages 31-37, October.
  3. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  5. Arturo Estrella & Jeffrey C. Fuhrer, 2002. "Dynamic Inconsistencies: Counterfactual Implications of a Class of Rational-Expectations Models," American Economic Review, American Economic Association, vol. 92(4), pages 1013-1028, September.
  6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
  7. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
  8. Unknown, 1999. "Discussion," Journal of Economic Psychology, Elsevier, vol. 20(4), pages 491-494, August.
  9. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
  10. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 572-577, February.
  11. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  12. Unknown, 1999. "Discussion," Ecological Economics, Elsevier, vol. 31(1), pages 23-29, October.
  13. Unknown, 1999. "Discussion," Journal of Economic Psychology, Elsevier, vol. 20(4), pages 495-498, August.
  14. Olivier J. Blanchard & Mark W. Watson, 1984. "Are Business Cycles All Alike?," NBER Working Papers 1392, National Bureau of Economic Research, Inc.
  15. Unknown, 1999. "Discussion," Journal of Economic Psychology, Elsevier, vol. 20(4), pages 465-483, August.
  16. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 358-366, February.
  17. Unknown, 1999. "Discussion," Journal of Economic Psychology, Elsevier, vol. 20(4), pages 485-489, August.
  18. R. Barrell & R. Anderton & GM Caporale & JW in't Veld, 1993. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 144(1), pages 33-54, May.
  19. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
  20. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  21. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
  22. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
  23. repec:sae:niesru:v:145:y::i:1:p:43-63 is not listed on IDEAS
  24. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  25. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  26. Ann-Charlotte Eliasson & Peter Isard & Douglas Laxton, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," IMF Working Papers 99/75, International Monetary Fund.
  27. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
  28. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  29. Michael Dotsey, 1999. "The importance of systematic monetary policy for economic activity," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 41-60.
  30. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 493-496, February.
  31. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 422-426, February.
  32. William Poole, 1999. "Monetary policy rules?," Speech 81, Federal Reserve Bank of St. Louis.
  33. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 215-220, February.
  34. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
  35. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 605-607, February.
  36. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  37. Unknown, 1999. "Discussion," Energy Policy, Elsevier, vol. 27(12), pages 737-742, November.
  38. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  39. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc.
  40. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 869-902.
  41. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  42. Michael Dotsey & Peter N. Ireland, 1993. "Liquidity effects and transactions technologies," Working Paper 93-01, Federal Reserve Bank of Richmond.
  43. Nelson, E., 1998. "Sluggish inflation and optimizing models of the business cycle," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 303-322, July.
  44. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  45. Andersen, Torben M., 1998. "Persistency in sticky price models," European Economic Review, Elsevier, vol. 42(3-5), pages 593-603, May.
  46. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 533-536, February.
  47. R. Barrell & R. Anderton & N. Vaughan & J.W. in't Veld, 1993. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 146(1), pages 30-49, November.
  48. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 387-390, February.
  49. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  50. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
  51. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  52. Unknown, 1999. "Discussion," Ecological Economics, Elsevier, vol. 31(1), pages 19-21, October.
  53. Romer, Christina D. & Romer, David H., 1994. "Monetary policy matters," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 75-88, August.
  54. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December.
  55. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
  56. Unknown, 1999. "Discussion," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 286-290, February.
  57. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
  58. Unknown, 1999. "Discussion," Journal of Accounting and Public Policy, Elsevier, vol. 18(2), pages 179-180.
  59. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7395. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.