The Systematic Origins of Monetary Policy Shocks

Lukas Hack, Klodiana Istrefi and Matthias Meier

Working papers from Banque de France

Abstract: Conventional strategies to identify monetary policy shocks rest on the implicit assumption that systematic monetary policy is time-invariant. In an environment with time-varying systematic monetary policy, we formally show that these strategies yield shocks that are contaminated, leading to bias in estimated impulse responses. In line with our theoretical results, we empirically show that conventional monetary policy shocks are predictable by measured fluctuations in systematic monetary policy. We propose new shocks that are purged of this predictability. Our preferred new shocks show that U.S. monetary policy affects inflation and output more strongly and faster compared to the corresponding conventional shocks.

Keywords: Monetary Policy Shocks; Systematic Monetary Policy; Identification (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 E58 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.banque-france.fr/system/files/2025-12/WP1021_0.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1021

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().