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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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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
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  28. 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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