Monetary disturbances matter for business fluctuations in the G-7
Fabio Canova () and
Gianni De Nicolo
No 660, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)
This paper examines the importance of monetary disturbances for cyclical fluctuations in real activity and inflation. It employs a novel identification approach which uses the sign of the cross-correlation function in response to shocks to assign a structural interpretation to orthogonal innovations. We find that monetary shocks significantly drive output and inflation cycles in all G-7 countries; that they are the dominant source of fluctuations in three of the seven countries; that they contain an important policy component, and that their impact is time varying.
Keywords: Business cycles; Group of Seven countries; Monetary policy; Inflation (Finance) (search for similar items in EconPapers)
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