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Monetary Policy Effect on the Business Cycle Fluctuations: Output vs. Index Measures of the Cycle

  • Oleg Korenok

    (Rutgers University)

  • Stanislav Radchenko

    (University of North Carolina at Charlotte)

The paper analyzes two questions: (i) the effect of a monetary policy shock on the business cycle and (ii) the extent to which a shift in a monetary policy affects the dynamics of business cycle. Unlike previous literature, to answer these questions, we measure cycle movements by calculating an index from a number of aggregate macroeconomic series via a dynamic factor model. We find that monetary policy shocks have a small but significant impact on persistent and transitory parts of the cycle. A systematic shift of monetary policy has a modest effect.

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File URL: http://econwpa.repec.org/eps/mac/papers/0409/0409015.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0409015.

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Length: 45 pages
Date of creation: 18 Sep 2004
Date of revision: 20 Sep 2004
Handle: RePEc:wpa:wuwpma:0409015
Note: Type of Document - pdf; pages: 45
Contact details of provider: Web page: http://econwpa.repec.org

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  17. Jean Boivin & Marc Giannoni, 2002. "Has monetary policy become less powerful?," Staff Reports 144, Federal Reserve Bank of New York.
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  19. Oleg Korenok & Stanislav Radchenko, 2006. "The role of permanent and transitory components in business cycle volatility moderation," Empirical Economics, Springer, vol. 31(1), pages 217-241, March.
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  21. Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
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  23. John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
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  25. Friedman, Milton, 1993. "The "Plucking Model" of Business Fluctuations Revisited," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 171-77, April.
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  27. John H. Cochrane, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 241-265.
  28. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
  29. 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.
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