The effects of quasi-random monetary experiments

Oscar Jorda, Moritz Schularick and Alan Taylor

Journal of Monetary Economics, 2020, vol. 112, issue C, 22-40

Abstract: The trilemma of international finance explains why interest rates in countries that fix their exchange rates and allow unfettered cross-border capital flows are outside the monetary authority’s control. Based on this exogenous source of variation, we show that monetary interventions have large and significant effects using historical panel data since 1870. The causal effect of these interventions depends on whether: (1) the economy is above or below potential; (2) inflation is low; and (3) there is a credit boom in mortgage markets. Several novel control function adjustments account for potential spillover effects. The results have important implications for monetary policy.

Keywords: Interest rates; Monetary experiments; Trilemma; Fixed exchange rates; Instrumental variables; Local projections; Local average treatment effect (search for similar items in EconPapers)
JEL-codes: E01 E30 E32 E44 E47 E51 F33 F42 F44 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (82)

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Related works:
Working Paper: Effects of Quasi-Random Monetary Experiments (2018)
Working Paper: The effects of quasi-random monetary experiments (2017)
Working Paper: The effects of quasi-random monetary experiments (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:112:y:2020:i:c:p:22-40

DOI: 10.1016/j.jmoneco.2019.01.021

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