Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited

47 Pages Posted: 29 Aug 2013

See all articles by Joshua D. Angrist

Joshua D. Angrist

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Òscar Jordà

Federal Reserve Banks - Federal Reserve Bank of San Francisco

Guido M. Kuersteiner

Boston University - Department of Economics

Date Written: August 2013

Abstract

We develop a flexible semiparametric time series estimator that is then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes. The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint suggest contractionary policy slows real economic activity. By contrast, the Federal Reserve's ability to stimulate real economic activity through monetary expansion appears to be much more limited. Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period.

Suggested Citation

Angrist, Joshua and Jordà, Òscar and Kuersteiner, Guido, Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited (August 2013). NBER Working Paper No. w19355. Available at SSRN: https://ssrn.com/abstract=2317697

Joshua Angrist (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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IZA Institute of Labor Economics

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Òscar Jordà

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

Guido Kuersteiner

Boston University - Department of Economics ( email )

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