Has Monetary Policy Become More Effective?

57 Pages Posted: 27 Apr 2006

See all articles by Marc P. Giannoni

Marc P. Giannoni

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

Jean Boivin

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

We investigate the implications of changes in the structure of the US economy for monetary policy effectiveness. Estimating a VAR over the pre- and post-1980 periods, we provide evidence of a reduced effect of monetary policy shocks in the latter period. We estimate a structural model that replicates well the economy's response in both periods, and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy's volatility. We find that by responding more strongly to inflation expectations, monetary policy has stabilized the economy more effectively in the post-1980 period.

Keywords: Transmission of monetary policy, minimum distance estimation, habit formation, vector autoregression, dynamic general equilibrium model, indeterminacy

JEL Classification: C32, E3, E52

Suggested Citation

Giannoni, Marc P. and Boivin, Jean, Has Monetary Policy Become More Effective? (January 2006). CEPR Discussion Paper No. 5463. Available at SSRN: https://ssrn.com/abstract=899391

Marc P. Giannoni (Contact Author)

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

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Jean Boivin

HEC Montreal ( email )

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National Bureau of Economic Research (NBER)

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