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Has Monetary Policy Become More Effective?

Jean Boivin¹; Marc Giannoni^2,1

¹ Columbia University · ² Center for Economic and Policy Research

We investigate the implications of changes in the structure of the U.S. economy for monetary policy effectiveness. Estimating a vector autoregression 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.

DOI

10.1162/rest.88.3.445

Volume

88 (3)

Pages

445-462

Language

en

Export

BibTeX

Sources

crossref openalex