This paper proposes to estimate the effects of monetary policy shocks by a new \agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that "contractionary" monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label "Volcker-recession" for the two recessions in the early 80's appears to be misplaced.
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Macroeconomics |
| Number of pages | 34 |
| Volume | 1999-28 |
| Publication status | Published - 1999 |
| Name | CentER Discussion Paper |
|---|---|
| Volume | 1999-28 |
Dive into the research topics of 'What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure'. Together they form a unique fingerprint.
title = "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure",
abstract = "This paper proposes to estimate the effects of monetary policy shocks by a new \agnostic <">method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that <">contractionary <">monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label <">Volcker-recession <">for the two recessions in the early 80's appears to be misplaced.",
keywords = "vector autoregression, monetary policy shocks, identification, monetary neutrality", author = "H.F.H.V.S. Uhlig", note = "Pagination: 34", year = "1999", language = "English", volume = "1999-28", series = "CentER Discussion Paper", publisher = "Macroeconomics", type = "WorkingPaper", institution = "Macroeconomics",Research output : Working paper › Discussion paper › Other research output
T1 - What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure
AU - Uhlig, H.F.H.V.S.
N1 - Pagination: 34
N2 - This paper proposes to estimate the effects of monetary policy shocks by a new \agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that "contractionary" monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label "Volcker-recession" for the two recessions in the early 80's appears to be misplaced.
AB - This paper proposes to estimate the effects of monetary policy shocks by a new \agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that "contractionary" monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label "Volcker-recession" for the two recessions in the early 80's appears to be misplaced.
KW - vector autoregression
KW - monetary policy shocks
KW - monetary neutrality
M3 - Discussion paper
T3 - CentER Discussion Paper
BT - What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure