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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.)

Abstract: 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)
New Economics Papers: this item is included in nep-dge and nep-mon
Date: 2000
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