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What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries?

  • Francis, Neville R
  • Owyang, Michael T
  • Theodorou, Athena T

In a recent paper, Galí, López-Salido, and Vallées (2003) examined the Federal Reserve’s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Federal Reserve responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Federal Reserve 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, the 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 University Library of Munich, Germany in its series MPRA Paper with number 834.

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Date of creation: 14 Jun 2005
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Publication status: Published in International Journal of Central Banking Number 3.Volume(2005): pp. 33-71
Handle: RePEc:pra:mprapa:834
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  3. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago.
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