Varying Monetary Policy Regimes: A Vector Autoregressive Investigation

No 2006-003, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: Recently, two stylized facts about the behavior of the U.S. economy have emerged: first, macroeconomic aggregates appear to be less volatile post-1984 than in the preceding two decades; second, monetary policy appears more responsive to inflationary pressures—and thereby more “stabilizing” — during the Volcker/Greenspan chairmanships relative to earlier regimes. Does a causal relationship exist between these two observations? In particular, has “better” policy by the Federal Reserve Board contributed significantly to the lessened volatility of the U.S. economy? This paper uses a structural vector autoregressive (VAR) specification to address these questions, examining the advantages and limitations of such an approach. In contrast with much of the existing research on these topics, I find that most of the quantitatively significant changes in volatility are attributed to breaks in the non-policy portion of the structural VAR, and not to the identified policy equation.

Keywords: Monetary policy reaction function; structural VAR models; Taylor rule; Volcker disinflation; parameter instability (search for similar items in EconPapers)
JEL-codes: E52 E58 E31 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: Written 2006-01
View list of references View citations in EconPapers

Forthcoming in Journal of Economics and Business

Downloads: (external link)
http://repec.wesleyan.edu/pdf/mshanson/2006003_hanson.pdf (application/pdf)

Related works:
Journal Article: Varying monetary policy regimes: A vector autoregressive investigation (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Wesleyan Economics Working Papers from Wesleyan University, Department of Economics
Contact information at EDIRC.
Series data maintained by Francisco Rodríguez ().