EconPapers    
Economics at your fingertips  
 

The Effects of Conventional and Unconventional Monetary Policy: A New Approach

Atsushi Inoue () and Barbara Rossi ()

No 1082, Working Papers from Barcelona Graduate School of Economics

Abstract: We propose a new approach to analyze economic shocks. Our new procedure identifies economic shocks as exogenous shifts in a function; hence, we call the "functional shocks". We show how to identify such shocks and how to trace their effects in the economy via VARs using a procedure that we call "VARs with functional shocks". Using our new procedure, we address the crucial question of studying the effects or monetary policy by identifying monetary policy shocks as shifts in the whole term structure of government bond yields in a narrow window of time around monetary policy announcements. Our identification sheds new light on the effects of monetary policy shocks, both in conventional and unconventional periods, and shows that traditional identification procedures may miss important effects. We find that, overall, unconventional monetary policy has similar effects to conventional expansionary monetary policy, leading to an increase in both output growth and inflation; the response is hump-shaped; peaking around one year to one year and a half after the shock. The new procedure has the advantage of identifying monetary policy shocks during both conventional and unconventional monetary policy periods in a unified manner and can be applied more generally to other economic shocks.

Keywords: shock identification; VARs; zero-lower bound; unconventional monetary policy; forward guidance (search for similar items in EconPapers)
JEL-codes: E4 E52 E21 H31 I3 D1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2019-10
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/1082.pdf (application/pdf)

Related works:
Working Paper: The effects of conventional and unconventional monetary policy: A new approach (2018) Downloads
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:bge:wpaper:1082

Access Statistics for this paper

More papers in Working Papers from Barcelona Graduate School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().

 
Page updated 2019-10-14
Handle: RePEc:bge:wpaper:1082