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- Title
NEWS SHOCKS AND THE EFFECTS OF MONETARY POLICY.
- Authors
Zhang, Ren
- Abstract
Traditionally identified monetary shocks in a structural vector autoregression (SVAR) model typically result in long-lasting effects on output and total factor productivity (TFP). In this paper, I argue that the typical monetary shock has been confounded with the news shock about future technology. I propose and implement a novel SVAR approach that effectively "cleans" the technology component from the traditional Cholesky monetary shock. With the new identification, I find that a monetary shock exerts smaller and less persistent effects on output and the level of measured TFP than a traditionally identified monetary shock. Finally, I show that the SVAR impulse responses can be replicated by augmenting the standard New Keynesian model with a time-varying inflation target and a non-Ricardian fiscal policy regime.
- Subjects
MONETARY policy; INDUSTRIAL productivity; FISCAL policy; INFLATION targeting; IMPULSE response
- Publication
Macroeconomic Dynamics, 2022, Vol 26, Issue 7, p1923
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100521000158