Has Monetary Policy Become More Effective?

55 Pages Posted: 25 May 2006 Last revised: 11 Aug 2006

See all articles by Jean Boivin

Jean Boivin

HEC Montreal; Columbia Business School; National Bureau of Economic Research (NBER)

Marc P. Giannoni

Federal Reserve Banks - Federal Reserve Bank of Dallas; Center for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2003

Abstract

Recent research provides evidence of important changes in the U.S. economic environment over the last 40 years. This appears to be associated with an alteration of the monetary transmission mechanism. In this paper we investigate the implications for the evolution of monetary policy effectiveness. Using an identified VAR over the pre- and post-1980 periods we first provide evidence of a reduction in the effect of monetary policy shocks in the latter period. We then present and estimate a fully specified model that replicates well the dynamic response of output, inflation, and the federal funds rate to monetary policy shocks in both periods. Using the estimated structural model, we perform counterfactual experiments to determine the source of the observed change in the monetary transmission mechanism, as well as in the economy's response to supply and demand shocks. The main finding is that monetary policy has been more stabilizing in the recent past, as a result of both the way it has responded to shocks, but also by ruling out non-fundamental fluctuations.

Suggested Citation

Boivin, Jean and Giannoni, Marc P., Has Monetary Policy Become More Effective? (January 2003). NBER Working Paper No. w9459. Available at SSRN: https://ssrn.com/abstract=375311

Jean Boivin (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Columbia Business School ( email )

3022 Broadway
Department of Economics and Finance Room 719, Uris Hall
New York, NY 10027
United States
212-854-9091 (Phone)
212-316-9355 (Fax)

HOME PAGE: http://www.columbia.edu/~jb903/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marc P. Giannoni

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5291 (Phone)

Center for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
57
Abstract Views
3,221
rank
301,247
PlumX Metrics