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On the Identification of Monetary (and Other) Shocks

Martin Menner () and Hugo Rodriguez Mendizabal ()

Finnish Economic Papers, 2008, vol. 21, issue 1, 39-56

Abstract: The present DSGE model spells out explicitly the instrumentation of monetary policy. The interest rate is determined depending on supply and demand for reserves which are affected by fundamental shocks. Unexpected changes in the monetary conditions of the economy are interpreted as monetary shocks and have the usual effects on economic activity. This view of monetary policy may have important consequences for empirical research: In the model, contemporaneous correlations between interest rates, prices and output are due to the simultaneous effect of all fundamental shocks. We provide an example where these contemporaneous correlations may be misinterpreted as a Taylor rule.

JEL-codes: C32 E13 E51 E52 E58 (search for similar items in EconPapers)
Date: 2008
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Working Paper: On the Identification of Monetary (and Other) Shocks (2005) Downloads
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