IMF Working Papers

Monetary Policy Matters: New Evidence Basedon a New Shock Measure

By Christopher W. Crowe, S. Mahdi Barakchian

October 1, 2010

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Christopher W. Crowe, and S. Mahdi Barakchian Monetary Policy Matters: New Evidence Basedon a New Shock Measure, (USA: International Monetary Fund, 2010) accessed December 3, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Conventional VAR and non-VAR methods of identifying the effects of monetary policy shocks on the economy have found a negative output response to monetary tightening using U.S. data over the 1960s-1990s. However, we show that these methods fail to find this contractionary effect when the sample is restricted to the period since the 1980s, apparently due to changes in the policymaking environment that reduce their effectiveness. Identifying policy shocks using Fed Funds futures data, we recover the contractionary effect of monetary tightening on output and find that almost half of output variation over the period appears due to policy shocks.

Subject: Central bank policy rate, Econometric analysis, Financial institutions, Financial services, Futures, Industrial production, Production, Structural vector autoregression, Vector autoregression

Keywords: Central bank policy rate, Contractionary monetary policy, Fed Funds Futures, Fed Funds futures contracts, Fed Funds futures data, Fed Funds Futures market, Fed funds rate, Fed policymaker, FOMC, Futures, Industrial production, Monetary policy, Monetary policy shock, Price level, Reaction function, Shock measure, Structural vector autoregression, VAR estimation, Vector autoregression, WP

Publication Details

  • Pages:

    65

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2010/230

  • Stock No:

    WPIEA2010230

  • ISBN:

    9781455208951

  • ISSN:

    1018-5941

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