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

Elizaveta Lukmanova () and Katrin Rabitsch ()

No 274, Department of Economics Working Paper Series from WU Vienna University of Economics and Business

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)
Date: 2018-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Working Paper: New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks (2018) Downloads
Working Paper: New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks (2018) Downloads
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