Monetary policy shocks - a nonfundamental look at the data

Matt Klaeffling

No 228, Working Paper Series from European Central Bank

Abstract: VAR studies of the effects of monetary policy on output suggest that a contractionary impulse results in a drawn-out, hump-shaped response of output. Standard structural economic models are generally not able to reproduce such a response. In this paper I look at nonfundamental representations that are observationally equivalent to a VAR. I find that the quantitative effect of a monetary policy shock on output might be much smaller and much more short-lived than the VAR studies suggest. I conclude that the apparent discrepancy between the VAR findings and standard structural models may be spurious and that the general tendency to append non-structural, ad hoc features to structural models should be questioned. JEL Classification: C12, E52

Keywords: Blaschke matrices; monetary policy; non-fundamental representations; VAR models (search for similar items in EconPapers)
Date: 2003-05
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003228

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