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New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks

Elizaveta Lukmanova () and Katrin Rabitsch ()
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Elizaveta Lukmanova: KU Leuven, Faculty of Economics and Business, Department of Economics

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: We augment a standard monetary VAR on output growth, inflation and the nominal interest rate with the central bank's inflation target, which we estimate from a New Keynesian DSGE model. Inflation target shocks give rise to a simultaneous increase in inflation and the nominal interest rate in the short run, at no output expense, which stands at the center of an active current debate on the Neo-Fisher effect. In addition, accounting for persistent monetary policy changes reflected in inflation target changes improves identification of a standard temporary nominal interest rate shock in that it strongly alleviates the price puzzle.

Keywords: Monetary policy; Neo-Fisher effect; Time-varying inflation target; DSGE; VAR (search for similar items in EconPapers)
JEL-codes: E12 E31 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2018-11
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