The long-run effects of monetary policy

Alan Taylor, Oscar Jorda and Sanjay Singh

No 14338, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Does monetary policy have persistent effects on the productive capacity of the economy? Yes, we find that such effects are economically and statistically significant and last for over a decade based on: (1) identification of exogenous monetary policy fluctuations using the trilemma of international finance; (2) merged data from two new international historical cross-country databases reaching back to the nineteenth century; and (3) econometric methods robust to long-horizon inconsistent estimates. Notably, the capital stock and total factor productivity (TFP) exhibit strong hysteresis, whereas labor does not; and money is non-neutral for a much longer period of time than is customarily assumed. We show that a New Keynesian model with endogenous TFP growth can reconcile these empirical findings.

Keywords: Monetary policy; Money neutrality; Hysteresis; Trilemma; Instrumental vari- ables; Local projections (search for similar items in EconPapers)
JEL-codes: E01 E30 E32 E44 E47 E51 F33 F42 F44 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (75)

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Related works:
Working Paper: The Long-Run Effects of Monetary Policy (2020)
Working Paper: The Long-Run Effects of Monetary Policy (2020)
Working Paper: The Long-Run Effects of Monetary Policy (2019)
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