Identifying Monetary Policy Shocks with Changes in Open Market Operations

Andreas Schabert

Working Papers from Business School - Economics, University of Glasgow

Abstract: In this paper we reexamine the e¤ects of monetary policy shocks by exploiting the information contained in open market operations. A sticky price model is developed where money is the counterpart of securities deposited at the central bank. The model’s solution reveals that a rise in central bank holdings of open market securities can be interpreted as a monetary expansion. Estimates of vector autoregressions for US data are further provided showing that reactions to an unanticipated rise in open market securities are consistent with common priors about a mon-etary expansion, i.e., a decline in the federal funds rate, a rise in output, and inertia in price responses. Compared to federal funds rate shocks, prices do not exhibit a puzzling behavior and a larger fraction of the GDP forecast error variance can be attributed to open market shocks. However, the explanatory power of the latter has decreased since federal funds rate targets have been announced.

JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2003-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Identifying monetary policy shocks with changes in open market operations (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2003_10

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