The dynamic effects of monetary policy: A structural factor model approach

Mario Forni; Luca Gambetti

doi:https://doi.org/10.1016/j.jmoneco.2009.11.009

The dynamic effects of monetary policy: A structural factor model approach

Mario Forni, Luca Gambetti

Department of Economics and Economic History

Research output: Contribution to journal › Article › Research › peer-review

65 Citations (Scopus)

Abstract

A structural factor model for 112 US monthly macroeconomic series is used to study the effects of monetary policy. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. The main findings are the following. First, the maximal effect on bilateral real exchange rates is observed on impact, so that the "delayed overshooting" puzzle disappears. Second, after a contractionary shock prices fall at all horizons, so that the price puzzle is not there. Finally, monetary policy has a sizable effect on both real and nominal variables. © 2009 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	203-216
Journal	Journal of Monetary Economics
Volume	57
DOIs	https://doi.org/10.1016/j.jmoneco.2009.11.009
Publication status	Published - 1 Mar 2010

Keywords

Delayed overshooting puzzle
Monetary policy
Price puzzle
Structural VAR
Structural factor model

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AB - A structural factor model for 112 US monthly macroeconomic series is used to study the effects of monetary policy. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. The main findings are the following. First, the maximal effect on bilateral real exchange rates is observed on impact, so that the "delayed overshooting" puzzle disappears. Second, after a contractionary shock prices fall at all horizons, so that the price puzzle is not there. Finally, monetary policy has a sizable effect on both real and nominal variables. © 2009 Elsevier B.V. All rights reserved.

KW - Delayed overshooting puzzle

KW - Monetary policy

KW - Price puzzle

KW - Structural VAR

KW - Structural factor model

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