The Long-Run Effects of Monetary Policy

73 Pages Posted: 2 Mar 2020

See all articles by Òscar Jordà

Òscar Jordà

Federal Reserve Banks - Federal Reserve Bank of San Francisco

Sanjay R. Singh

University of California, Davis

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: January 20, 2020

Abstract

Is the effect of monetary policy on the productive capacity of the economy long lived? Yes, in fact we find such impacts are significant and last for over a decade based on: (1) merged data from two new international historical databases; (2) identification of exogenous monetary policy using the macroeconomic trilemma; and (3) improved econometric methods. Notably, the capital stock and total factor productivity (TFP) exhibit hysteresis, but labor does not. Money is non-neutral for a much longer period of time than is customarily assumed. A New Keynesian model with endogenous TFP growth can reconcile all these empirical observations.

Keywords: monetary policy, money neutrality, hysteresis, trilemma, instrumental vari- ables, local projections

JEL Classification: E01, E30, E32, E44, E47, E51, F33, F42, F44

Suggested Citation

Jordà, Òscar and Singh, Sanjay R. and Taylor, Alan M., The Long-Run Effects of Monetary Policy (January 20, 2020). Available at SSRN: https://ssrn.com/abstract=3529773 or http://dx.doi.org/10.2139/ssrn.3529773

Òscar Jordà

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

Sanjay R. Singh (Contact Author)

University of California, Davis ( email )

One Shields Drive
Davis, CA 95616-8578
United States

HOME PAGE: http://ssingh.ucdavis.edu

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org

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