The Systematic Origins of Monetary Policy Shocks

Lukas Hack (), Klodiana Istrefi and Matthias Meier

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Conventional strategies to identify monetary policy shocks rest on the implicit assumption that systematic monetary policy is constant over time. We formally show that these strategies do not isolate monetary policy shocks in an environment with time-varying systematic monetary policy. Instead, they are contaminated by systematic monetary policy and macroeconomic variables, leading to contamination bias in estimated impulse responses. Empirically, we show that Romer and Romer (2004) monetary policy shocks are indeed predictable by fluctuations in systematic monetary policy. Instead, we propose a new monetary policy shock that is orthogonal to systematic monetary policy. Our shock suggests U.S. monetary policy has shorter lags and stronger effects on inflation and output.

Keywords: Systematic monetary policy; monetary policy shocks; identification (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 E58 (search for similar items in EconPapers)
Pages: 41
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ecm, nep-inv and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp557 (application/pdf)

Related works:
Working Paper: The Systematic Origins of Monetary Policy Shocks (2024)
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:bon:boncrc:crctr224_2024_557

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().