Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86942
Authors: 
Willems, Tim
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-099/2
Abstract: 
Traditional ways of analyzing the effects of monetary policy shocks via structural vector autoregressions require the use of unrealistic identifying assumptions: they either do not allow for a response of output and prices on impact of the shock, or they exclude contemporaneous values of these variables from the monetary authority's information set. This paper relaxes these incredible restrictions by exploiting a convenient natural setting, namely the fact that we can use data from dollarized countries. The fact that non-monetary US shocks do not seem to be transmitted to these countries, has the additional advantage that it makes the exercise less vulnerable to potential misidentification of the US monetary policy shock. The results obtained in this way suggest that prices fall quite rapidly after a monetary contraction. Consistent with this finding, the effects of monetary policy shocks on output seem to be small.
Subjects: 
Monetary policy effects
Price puzzle
Structural VARs
Identification
Block exogeneity
JEL: 
E52
E31
C32
Document Type: 
Working Paper

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