What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure

H.F.H.V.S. Uhlig

Research output: Working paperDiscussion paperOther research output

989 Downloads (Pure)

Abstract

This paper proposes to estimate the effects of monetary policy shocks by a new \agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that "contractionary" monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label "Volcker-recession" for the two recessions in the early 80's appears to be misplaced.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages34
Volume1999-28
Publication statusPublished - 1999

Publication series

NameCentER Discussion Paper
Volume1999-28

Keywords

  • vector autoregression
  • monetary policy shocks
  • identification
  • monetary neutrality

Fingerprint Dive into the research topics of 'What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure'. Together they form a unique fingerprint.

  • Cite this

    Uhlig, H. F. H. V. S. (1999). What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. (CentER Discussion Paper; Vol. 1999-28). Macroeconomics.