The Monetary Transmission Mechanism: Evidence from the G-7 Countries

Stefan Gerlach () and Frank Smets

No 1219, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this paper we compare the effects of monetary policy on output and prices in the G-7 countries using a parsimonious macroeconometric model comprising output, prices and a short-term interest rate. We identify monetary policy shocks by assuming that they do not affect real output instantaneously (within the quarter) or in the long run, and implement these restrictions using a sequential instrumental variables technique. We show that the so-called price-puzzle, which has been noticed in the large VAR-literature in which only short-run restrictions are used, disappears. This suggests that the puzzle is due to the fact that the use of only short-run identifying restrictions does not properly discriminate between contractionary aggregate supply shocks and monetary policy shocks. We conclude that the effects of a standardized monetary policy action are very similar across countries.

Keywords: Monetary Policy; Structural Vector Autoregressions (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 1995-07
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Citations: View citations in EconPapers (150)

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Working Paper: The monetary transmission mechanism: Evidence from the G-7 countries (1995)
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