Using Dollarized Countries to Analyze the Effects of US Monetary Policy Shocks

Tinbergen Institute Discussion Paper 10-099/2

30 Pages Posted: 4 Feb 2011

See all articles by Tim Willems

Tim Willems

University of Oxford - Nuffield Department of Medicine

Date Written: January 19, 2011

Abstract

Identifying monetary policy shocks is difficult. Therefore, instead of trying to do this perfectly, this paper exploits a natural setting that reduces the con sequences of shock misidentification. It does so by inferring from the responses of variables in dollarized countries. They import US monetary policy just as genuine US states do, but have the advantage that non-monetary US shocks are not imported perfectly. Consequently, this setting reduces the role played by any non-monetary US shocks, while leaving the effects of the true monetary shocks unaffected. Results suggest that prices fall after monetary contractions; output does not show a clear response.

Keywords: Monetary policy effects, Price puzzle, Structural VARs, Identification, Block exogeneity

JEL Classification: E52, E31, C32

Suggested Citation

Willems, Tim, Using Dollarized Countries to Analyze the Effects of US Monetary Policy Shocks (January 19, 2011). Tinbergen Institute Discussion Paper 10-099/2, Available at SSRN: https://ssrn.com/abstract=1685786 or http://dx.doi.org/10.2139/ssrn.1685786

Tim Willems (Contact Author)

University of Oxford - Nuffield Department of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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