Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212439 
Year of Publication: 
2019
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 5/2019
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby inflation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We find that monetary policy shocks affect these key variables in a broadly similar manner across all frequency bands. Finally, we assess the ability of standard DSGE models to replicate these findings. While the models generally capture low-frequency movements via stochastic trends and business cycle fluctuations through various frictions they fail at capturing the medium-term cycle.
JEL: 
C32
C51
E32
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-263-1
Document Type: 
Working Paper

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