Has Monetary Policy Become More Effective?

Marc Giannoni and Jean Boivin ()

No 5463, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate the implications of changes in the structure of the US economy for monetary policy effectiveness. Estimating a VAR over the pre- and post-1980 periods, we provide evidence of a reduced effect of monetary policy shocks in the latter period. We estimate a structural model that replicates well the economy's response in both periods, and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy's volatility. We find that by responding more strongly to inflation expectations, monetary policy has stabilized the economy more effectively in the post-1980 period.

Keywords: Transmission of monetary policy; Minimum distance estimation; Habit formation; Vector autoregression; Dynamic general equilibrium model; Indeterminacy (search for similar items in EconPapers)
JEL-codes: C32 E3 E52 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (616)

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Journal Article: Has Monetary Policy Become More Effective? (2006)
Working Paper: Has Monetary Policy Become More Effective? (2003)
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