Monetary policy, oil shocks, and TFP: accounting for the decline in U.S. volatility

Sylvain Leduc () and Keith Sill ()

No 873, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: An equilibrium model is used to assess the quantitative importance of monetary policy for the post-1984 decline in U.S. inflation and output volatility. The principal finding is that monetary policy played a substantial role in reducing inflation volatility, but a small role in reducing real output volatility. The model attributes much of the decline in real output volatility to smaller TFP shocks. We also investigate the pattern of output and inflation volatility under an optimal monetary policy counterfactual. We find that real output volatility would have been somewhat lower, and inflation volatility substantially lower, had monetary policy been set optimally.

Keywords: Monetary policy; Business cycles; Inflation (Finance) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ene, nep-mac and nep-mon
Date: 2006
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Related works:
Working Paper: Monetary policy, oil shocks, and TFP: accounting for the decline in U.S. volatility (2003)
Journal Article: Monetary Policy, Oil Shocks, and TFP: Accounting for the Decline in U.S. Volatility (2007)
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